Marriages of medium, market and moment

Friends Reunited is the dotcom that investors were looking for when they opened their wallets in 1999 and 2000. Why it works and what it has in common with other successful web operations give some clues about the commercial future of the internet.

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This week a web site called Friends Reunited made it into the press. In the nature of these things, it was for a negative reason: the site is a “meeting place” for former pupils of UK schools, and teachers complained that they were being unfairly attacked in the chat areas. Huge issues of data protection and freedom of speech were raised, briefly, then forgotten as Friends Reunited said it would suspend its message board.

These are issues that will, I suspect, burst upon us mightily at some stage. Meanwhile, the Friends Reunited affair raises another intriguing issue. More than 2m people have used it, the message board has had 512,000 postings and its founder came in at number 10 in an FT listing of creative folk in the UK. Yet it is run from a house in north London, and has not spent a penny on marketing.

In other words, Friends Reunited is the dotcom that all those investors were looking for when they opened their wallets in 1999 and 2000. What makes it work? What does it have in common with other successful web operations? The answer may just give some clues about the real future of this strange medium.

As well as Friends Reunited, I’ve looked at two web-dependent businesses that are definitely working, and one that looks promising. They are the auction site ebay (and its various national variations), the components distributor RS Components and a teenage ‘hang-out’, Habbo Hotel.

What do they have in common, beyond their success (Habbo is the unproven one, but it does have 780,000 people signed up in less than a year)? First, they all play to the strengths of the web — including the low cost of data transfer, the ability to store huge amounts of data at very low cost, interactivity, and the fact that sites can be updated instantly. Put together, these strengths make the web a wonderful meeting and matching place. Second, they play to human nature. And third, they got their timing right.

Simple and compulsive

Friends Reunited is blindingly simple. Look up your old school. See if any of your former chums have registered; sign up for yourself, and post details and a photo if you like. Then, for a £5 annual fee, send them e-mails and join the message boards (when they are available). Every week or so, you are sent an e-mail telling you that people from your year have signed up. It is almost impossible not to click on the link to see who they are. The site uses the web’s storage, interactivity and updatability in bucketloads; it also hits a psychological spot that is almost irresistible. Not surprise that it has become so popular without any active marketing. Every time in the past three months someone has said “Have you seen this site?” I knew they were going to tell me about Friends Reunited.

I suspect if I were a teenager, I would probably know about Habbo too. It plays on the same compulsion that drives the SMS messaging craze — to communicate and play, well away from the eyes (and probably comprehension) of parents. Habbo is a “virtual hotel” where teenagers can go to chat. They can set up their own “private rooms” (90,000 so far), which they can furnish as they will. A chair costs 10p; a bath with bubbles 90p. Some users have set up their rooms as Who wants to be a millionaire? sets, and have run competitions with furniture as prizes. Habbo plays to the web’s strengths, and it taps teenage psychology.

Interactive and targeted

Where do eBay and RS Components fit in? For a start, they both use the web’s storage, interactivity and updatability. They are also ‘meeting places’ — putting hundreds of thousands of products in touch with hundreds of thousands of people. The psychology is right too. Ebay is addictive — for many people it has become more of a need than a transactional device (though for others, it is also their livelihood). RS Components has been selling components by mail order for many years — but its targets have always been the technically-inclined, who took to computers early on.

Timing and profitability

So what’s this about timing? Well, these companies have done well because they rode the wave. When I first started looking at the web, the big auction site was Onsale — but it was too early. Ebay came along at just the right moment. I could give any number of other good ideas that failed because they were ahead of their time. I’m quite sure that neither Friends Reunited nor Habbo would have succeeded even two years ago: there weren’t enough people online.

Then there is the little matter of profit. Well, they all have clear revenue streams — in some cases, multiple revenue streams. Friends Reunited makes money from advertising and from those £5 fees, Habbo from selling virtual furniture, from sponsorship and from selling market research (You want to know what 16 year olds want? We can find out). Ebay and RS make revenue from more traditional cuts. But revenue generation is the effect, not the cause: the key lies in the more fundamental factors I have been talking about Which, oddly, was the thinking of many investors when they poured cash into dotcoms: if it’s a good idea, it must make money. The truth was that if it was a good idea launched at the right time, it would make money. Still true, actually; but try telling that to investors.

First published on 16 November, 2001