P Morgan Brown

The big news of the day is that Facebook has acquired FriendFeed for about $50 million in cash and stock.  There’s plenty of coverage of the deal around the Web.  While many are surprised, I for one am not.  It seems to be a new trend of build up quickly and get out with a solid “double” by selling to a larger institution without swinging for the fences with an uncertain economy and questionable revenue opportunities. I coined the phrase “Web 2.0 business model” when Social|Median sold in 8-months to Xing to everyone’s surprise.  I see this as a bigger version of the same concept.

Back then I wrote:

With yesterday’s news that Social|Median was sold the start-up to German social network XING, CEO Jason Goldberg has cemented himself as the lead figure in what will surely be a case study in successfully developing, managing and exiting a Web 2.0 business. In whatever sequel there is to Sarah Lacy’s Once You’re Lucky, Twice You’re Good tome about the Valley’s phoenix-like rise out of the ashes of the dot-com bust (and there will be one) Social|Median deserves to be listed at the top of the success stories.

Launched a mere 8 months ago with very little funding Jason Goldberg put on a clinic of how to bring together the best of social marketing, online marketing, opportunistic entrepreneurship, public relations and sheer, unrelenting effort to drive his companies success. And, he was smart enough to see opportunity when it presented itself and put the company and himself in the best seat for success for the future.

I think much of that holds true for FriendFeed.  Because FriendFeed was really in between a rock and a hard place, saw an attractive exit and made the right decision.

FriendFeed was damned if they did and damned if they didn’t

The most interesting part of the whole transaction has been the rabid FriendFeed community’s response to the sale.  You can see some of the comments below; but they range from generally supportive to extremely negative. You can read all 477 comments here.  Claims of “selling out” and breaking the user’s trust run rampant through them.  Take a second to check out this sample:

Now we know what the headline of this story is – that FriendFeed was being acquired by Facebook.  But the real rub is that this could’ve been any significant change for FriendFeed and they would’ve experienced the same backlash.

Imagine these headlines:

FriendFeed acquired by Twitter

FriendFeed acquired by Google

FriendFeed acquired by Microsoft

FriendFeed to start charging for some services

FriendFeed adds advertising to news feed

FriendFeed adds sponsored news items

You can take any of these headlines and paste the same angry comments from the community of FriendFeed users below those announcements.  The tight-knit group of FriendFeed power users would go on for days about changes to the UI, and other tweaks to the service.  Their negative reaction would’ve come with any significant change.  And therein lies the problem.

FriendFeed knew it had a problem

The guys that started FriendFeed are brilliant.  And I believe they knew they had a problem.  They had a dedicated group of power users who skewed heavily geek and were having a hard time finding a way to make the site accessible and friendly to regular net denziens.  Through various UI changes and service changes they tried but they couldn’t get there.  The river of news was just too much for all but the tech geeks and insiders that staked claim on the new service.

The owners also realized they were sitting on awesome technology, best of breed stuff, that others were quickly leveraging deep bank accounts and teams to try to recreate.  You could see Facebook chipping away and sniping ideas left and right, by adding likes and commenting to the News Feed. They new their window of opportunity was probably limited.  That their advantage in engineering design would evaporate quickly as Google, Facebook and Twitter (and Microsoft with Bing) turned their attention and deep pockets towards real time search.

The FriendFeed team also knew that monetizing the site any time soon wasn’t a realistic revenue opportunity of any magnitude.  With a limited user base and a very tight knit community resistant to change of any kind, the idea of advertising or the freemium service model wasn’t realistic.  And with a team primarily built of engineers they weren’t built to monetize at this point.  Even trying to recruit to build that model would’ve put them at least 12-18 months out.  Look at Twitter’s biz dev hire, how’s that monetization looking so far?  That timeline was probably unrealistic in the face of mounting competitive pressure from the big boys.

And so FriendFeed made the right call

As tough as it is on the regular users of FriendFeed and as disappointed as they are it looks like a logical choice and the smart choice on the part of the FriendFeed founders.  Faced with an uncertain and overly-competitive future space they took their best assets – their technology and team – and sold it for the right price.  They realized that their platform, the FriendFeed site was not the winning asset.  They realized that their traffic and user growth was not where it needed to be.  And they realized that any path to monetization or growth would’ve required major overhauls to the service that would’ve angered their current community and had various prospects of success.

So while the community seethes the owners can rest assured that they made the right call.  They were damned if they did and damned if they didn’t.  So you take the damning and the comforting fact that your technology and innovation will drive the development of the 4th largest site on the Internet.

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