Another warning should come from the, once wildly popular, British site Friends Reunited. It was launched in 2000 and, by 2005 had 15m members. It was then sold to British television company ITV for £120m plus earn-outs. Just four years later, it was sold on again for just £25m. It’s new owners now value the site at £5.2m.
In many ways, Friends Reunited had a key jump on Facebook. It was a site based on reuniting school friends and ,was able to tap into pre-existing relationships that users had at school. This creates instant familiarity and the site was hugely popular. Unfortunately, its owners were very short sighted. The ability to interact was very limited and, users were forced to pay for usage. This meant that content growth would be limited and, despite the site’s natural advantages, users began to turn away in droves.
The lesson is that the decision to act and monetize a site has to be made with a delicate understanding of the effects of the consequences of this action. Friends Reunited failed because its desire to make money alienated the desire of its users to interact with the site. Facebook needs to be careful not to do the same thing, especially via its privacy issues. Companies like Zynga (NASDAQ: ZNGA) may generate revenues on Facebook, but there is a limit to how much FarmVille can be put in users faces.