How to Kill a Great Idea!

Jonathan Abrams created the first online social network and enlisted Silicon Valley's best and brightest to run it. Yet Friendster flamed out spectacularly. What went wrong?

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Jason Madara

Michael Macor/The San Francisco Chronicle

IT'S MY PARTY After being forced out of Friendster, Abrams launched Slide, a stylish basement lounge in San Francisco.

It's not easy being the brains behind one of the biggest disappointments in Internet history. Sure, there are those who describe you as a visionary, but in the same breath they'll deride you as a lousy businessman. Bloggers attack you, call you "a real asshole" and "a very lucky idiot savant." Former investors badmouth you. Other entrepreneurs copy your ideas without giving you credit. The New York Times makes reference to your "ballooning ego" and the local Fox affiliate can't even get your name right.

Jonathan Abrams--founder of Friendster, the first online social network, and a pioneer of one of today's hottest trends on the Web--tries his best not to think about these things. And with two new companies, he has plenty to distract him. Last September he opened Slide, a stylish basement lounge in downtown San Francisco. And in March, he launched a new bid to make it big on the Web--Socializr, a website that lets users invite people to parties and other events.

And yet the story of how Friendster, once the hottest start-up in America, became the butt of a business joke continues to preoccupy him. And no wonder. By the rules of Silicon Valley, Friendster--a bold idea backed by experienced investors and the best managers money could buy--was destined for greatness. Instead, it failed spectacularly. "I did what you're always told to do as a young entrepreneur," Abrams says. "I brought on experienced investors to help Friendster fulfill its potential. But the all-star team was the curse of death."

If he had invented something as mundane as a brilliant customer relations management application, no one would know Jonathan Abrams's name. But as the creator of the first online social network, Abrams promised something truly exciting: to change the way people communicated with one another. As Fortune put it in October 2003, "There may be a new kind of Internet emerging--one more about connecting people to people than people to websites." In the months following its launch earlier that year, Friendster garnered millions of devotees, who used its name as both a verb and a noun. By the end of 2003, the company Abrams founded in his San Francisco apartment had raised $13 million from the same investors who'd backed Amazon (NASDAQ:AMZN), Yahoo (NASDAQ:YHOO), and eBay (NASDAQ:EBAY) and had appeared in scores of major magazines and newspapers. Friendster was a company the world could understand, participate in, and dream on. It was the next big thing.

Friendster is among the few start-ups that changed the world--but not as its founder had hoped. During March 2007, one out of every five Americans visited MySpace.com, a copycat site that was built in 2003 by Intermix and sold to News Corp. (NYSE:NWS) two years later for half a billion dollars. Those MySpace visitors listened to music, scoped out crushes, made plans with friends, decided that Stephen Colbert was cool--and in the process altered the way we think about and use the Internet. Meanwhile, Friendster fell to 13th place among social networks in the U.S. and saw its market share decline to 0.3 percent.

In the business and technology media, the fall of Friendster has been widely portrayed as an isolated management failure--with Abrams shouldering most of the blame. Indeed, Friendster now has the dubious honor of being the focus of a Harvard Business School case study on how not to manage a tech company. It ran out of money last year and was recapitalized at a valuation of $3 million, effectively making it a subsidiary of Kleiner Perkins Caufield & Byers, one of its VC investors. The recap stripped Abrams of his board seat and almost all of his equity. The founder, now an outsider, retains roughly 4 percent of the company, which has since received more venture capital but has yet to turn a profit. Most observers agree that while Friendster might still swing a modest sale, a big acquisition or an IPO is out of the question. "Everyone saw this as a no-brainer, as 'How could they screw it up?" says Russell Siegelman, a general partner at Kleiner Perkins and a current board member at Friendster. "But not all the deals we do work."

Statements like that are just one more thing that gets under Abrams's skin. He's a prickly sort, with lots of opinions and little reluctance to share them. However, until I tracked him down at his bar last October, he had been uncharacteristically reticent about Friendster. But over the course of several hours (and during interviews in the months that followed), Abrams laid out a narrative that is decidedly different from the one put forth by the Silicon Valley VCs, bloggers, and journalists. He argues that Friendster fizzled not only because it fell victim to mismanagement, but because he embraced a system that is designed to create far more failures than successes. Friendster, he believes, was not simply a singular failure, but a systematic one. And he's determined that things be different with his new Web venture, Socializr. "In the old days, entrepreneurs would bootstrap and figure things out over the first few years," he says. "The VCs come in too early these days."

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Max Chafkin

Senior writer Max Chafkin has profiled companies such as Yelp, Zappos, Twitter, Threadless, and Tesla for the magazine. He lives in Brooklyn, New York.

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