Friendster's Comeback Plan

After losing ground to Facebook in many of its heartland Southeast Asian markets, rival social network Friendster has embarked on a comeback plan, launching a payments platform to sell virtual items and games while seeking to stand out with products and services that use the new system.

“We’re focused on growing our user base and building a solid business,” says Friendster’s global product director Jeff Roberto. “Both are important to us.”

Over the past year or so, Facebook’s dramatic rise in Asia has coincided with a decline in both Friendster’s audiences and how much time they spend on the site.

Formidable competition
Friendster remains the leading social network by total audience in the Philippines however, just ahead of Facebook, according to online ratings company, ComScore. While Facebook leads in Indonesia, Malaysia and Singapore meanwhile, Friendster is number two.

“Friendster has to find new ways to make money but at the same time they have to maintain their market share and have a reason why people would stay with Friendster and not go to Facebook,” says Ben Poole regional head of interaction for media agency, MEC. “They also have to up their engagement levels.”

Roberto argues that Friendster’s new line-up of products, which will be launched over the coming weeks, will differentiate the site from other local communities, especially within Southeast Asia.

Closer ties
The company will also host more on-ground events such as the recent Pinoy Friendster Day in the Philippines, a free event that included live performances by local bands, speed dating, style make-overs and a fireworks display, attracting more than 7,000 people.

At the same time, Friendster’s new payments platform, which is being rolled out after a debut in Malaysia earlier this month, will diversify its current revenue model, which relies on advertising and sponsorship deals.

Micro-payments have already proved to be a profitable venture for some large social networks in China, Japan and Korea, but unlike Friendster and Facebook these networks tend to operate closed systems, controlling the applications that run on their sites and making it easier to monitor and police transactions.

Friendster’s payment platform will be extended to third parties such as advertisers, game publishers and applications developers, allowing Friendster to take a cut of purchases made with its own currency.

A new virtual currency
The new system, operated by Malaysian payments provider MOL AccessPortal, creates virtual Friendster Coins which users can buy via prepaid cards sold in convenience stores, mobile phone shops and cyber cafes, as well as with credit cards and through online and mobile channels. MOL also provides users with transaction and fraud management services.

Micropayments have yet to gain traction in Southeast Asia, though Roberto is confident Friendster’s approach, based on the existing popularity of prepaid cards, will take off. “We’re extending that model to work on Friendster," he explains. "We’re applying it to a variety of products and services that have realized success in other micro-payment ecosystems.”

The click-through rates for ads in social environments are especially low, though popular sites with a large turnover of page-views can still make some money selling ad space by offering smart targeting tools. Selling virtual goods that offer some utility or an emotional benefit can be a more lucrative enterprise, however.

“Once you establish a virtual economy, it’s just your creativity, or best practices that you can integrate, that limit the type of things you can sell,” points out Benjamin Joffe, CEO of Beijing-based digital specialist +8. “There’s so much you can sell, so many existing proven ideas and so many new ideas to find.”

A fine balance
Mixing micro-payments with advertising remains relatively uncharted territory, however. Most of the social networks that already earn a lot from micro-payments, such as Tencent in China and DeNa and Gree in Japan, make relatively little money from advertising, focusing their efforts on creating desirable environments where people can interact online.

“Users become a commodity, the eyeballs you are selling,” Joffe warns. “That changes quite a lot the strategy and DNA of the service.”

Like Facebook, which is working on a payment platform of its own, Friendster wants to do both, and will gather feedback from both users and advertisers to help achieve the right mix between advertising and micro-payments.

Roberto says: “We believe there is an opportunity to strike a balance, and deliver a compelling user experience.”