Why FriendFeed Deserves a Billion Dollar Valuation

I know, I know.  They’ve been around for less than a year, so how could they possibly be worth a billion dollars?  It’s basically just a Twitter clone that’s a little bit faster and doesn’t go down as often, right?  Despite the surface similarities, FriendFeed has the potential to become one of the more valuable services on the Internet, and here’s why.  Google’s primary goal is to index the world’s information.  FriendFeed’s primary goal is to index the world’s conversations.  We all know the value that Google created out of their index.  Here’s a quick overview of how FriendFeed can do the same.

Phase 1: Grow a Rabid User Base

In order for FriendFeed to build up a index of the world’s conversations, they first needed to create a front end with two important components.  First, it needed to be as easy as possible for people to pull in their conversations from all over the web, and to do it in the most automated format possible.  Second, they needed to build in a viral distribution model that would allow them to build up their user base as quickly as possible.  My guess is that somewhere in the FriendFeed offices, they have a graph on the wall that shows two curves.  One is an exponential growth curve that represents their predicted growth (based on power laws and estimated viral coefficients) with a clearly defined upper threshold.  The other is a line showing the actual user activityThe one thing FriendFeed should focus on in this initial phase is to ensure that their actual growth is showing a viral growth pattern and will reach their target threshold by a certain date.  Once they reach this threshold, they will have proven out their viral distribution model.  Take an exponential growth pattern and multiply that by an exponential content aggregation engine, and FF has the underpinnings of a massively powerful engine that can quickly build out the data needed to form the basis of their “conversation index”.

It will be pretty obvious when they hit their target threshold.  It will be approximately 2-3 weeks before they announce a pretty sizeable VC investment.  FF won’t be the only ones who are watching this growth curve very closely.  :) 

Phase 2: Mine for Context

At this point, FF can use the new investment to build out a pretty sizeable server farm to handle the incredible amounts of data that will start flooding in.  You’ll probably also see some job postings on their site for PhD’s with backgrounds in data mining and contextual relevance.  Why?  Because unlike a traditional search engine that can do a pretty good job of indexing information just based on things like page rank and keywords, extracting value from conversations needs to take context into account before it can truly be valuable. 

For example, compare the view of Twitter posts on the Twitter public feed to the view of Twitter posts on Twistori.  This is a very crude example of type of analysis needed to pull a signal out of the noise.  Once the algorithms have been created to extract the context, FF just has to sit back and wait for their index to grow to a point where they are able to provide statistically significant results for search queries.  Which, of course, brings us to the start of phase 3.

Phase 3: Search v2

And here’s the real value of FF gets unlocked – search.  Scoble actually touched on this a few weeks back (see #3), but here’s my take on it.  Imagine you’re looking to buy a new laptop.  You go to FF and ask the question “What laptop should I buy?”.  The results will come back in two forms.  First, a list of posts from your friends displaying their opinions on their favorite laptops.  Note that unlike the search that is on FF now, these contextual results will filter out any noise such as conversations about problems they are having with their laptops, posts that have the word “laptop” but are not specifically about laptops, etc..  Second, a list of posts from all users displaying information about their favorite laptops.  Again, this will be a filtered list, and it could also be aggregated in a format like “120 people like the MacBook Air, 75 people like Dell Latitude D820, etc..”.  Of course, you could click into any of these lists to see the details of the conversational threads.  And finally, if you didn’t get a satisfactory answer from your search, you could simply post your search query as a message post to your followers, and get a special notification back once people start responding.  This goes one step beyond anything a traditional search engine can do, and really takes a best-of-both-worlds (mechanical vs personal) approach to finding the information you’re looking for.

In addition, there’s one more killer application of this new way to search.  Imagine you’re in downtown Seattle and you’re looking for a place to eat.  You pull out your phone, do a search for “best restaurants in Seattle” (or click on the “Restaurant” icon on the FF mobile app), and get the same FF search outlined above for both your friends and everyone – filtered to show only opinions from people from within 1 mile of your current location. 

I’m not in charge of the budgets at G, M, or Y – but if I was, I don’t think it’s too crazy to think that a service like that tied into my advertising platform might be worth a pretty nice chunk of change.

What do you guys think?  Am I drinking way too much of the Web 2.0 Kool-Aid, or is FF really on to something here?  I’d love to hear your thoughts in the comments below.

Update: Jeremiah Owyang just posted an interesting analysis on FF that’s worth a read as well. 

Update #2: TechCrunch is reporting on FF’s hockey-stick growth.  Now it’s time to keep an eye on their “We’re hiring!” pages… 

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10 responses to “Why FriendFeed Deserves a Billion Dollar Valuation

  1. Pingback: On the shoulders of giants « The Constant Beta Blog

  2. You’ve hit on something about FriendFeed. It seems to have so many opportunities in terms of social graphs, viral distribution, mass human-filtered search, etc. It will take time to realize all of that, but the potential does seem to be there. Broadening the user base will be key.

  3. Friend Feed is even less mainstream than Twitter and Twitter, as far as I can tell, is only made up of people behind the curtain (internet marketers talking to internet designers talking to programmers talking to journalists.) Friend Feed? Only the most hardcore information junkies seem to be using it as it’s far more than a twitter close- subscribe to a few busy people and it’s ALL NOISE. Twitter, minus following someone like Scoble who absolutely bombs the system (hundreds of tweets a day,) is really much less noisy. So if only a subset of Twitter’s already limited user base are actually interested in the service I have a hard time envisioning it going wide enough to matter to the larger world.

  4. Very good points there. Over the last several months, Google has been lacking the “filter” which FF uses to get the most specific items in a single search. For instance, I have a problem with a software piece. Google gives me the results and I find nothing specific to what I wanted. Not that it needed to be, but Google rarely finds good answers for you, which could even bring Yahoo Answers up a notch due to more Yahoo searches.

  5. Rob – good points. From a purely mathematical standpoint, FF has the right underlying distribution model to grow to the size needed to pull off what I described above. However, the big caveat is that the viral growth starts to taper off as it reaches the peak of their *addressable* market, which is really important.

    Right now, their addressable market really is only the hardcore info junkies, but if they can expand out a little to offer something that would appeal more to a mainstream audience (or something like Twitter goes more mainstream), then the addressable market cap goes way up, and all the stuff I talked about in phase 2 and 3 start to open up.

  6. “We all know the value that Google created out of their index.”

    It is nothing compared to the value they may create by opening up their index.

    It is all about initiative. If Google opens the index, it passes initiative to third parties. Then we would no longer need Google to INITIATE improvements or features, neither would we be able to blame it for not initiating.

  7. Amolpatil2k – I 100% agree that if Google opened their index, it would be tremendously valuable. However, the question is (and has been since the day they went public): value for whom?

    Unless Google can show a direct correlation between opening up their index and delivering direct or indirect value to their shareholders, they won’t do it. In fact, I’d argue that they can’t do it – as a public company they are legally obligated to act in the best interest of their shareholders. That’s just one of the many reasons why it’s so much more fun to talk about privately-held startups like FF than it is to pay attention to the big, boring public ones. :)

  8. @astartupaday
    Thanks for replying. I think opening up anything ends up reducing the value to shareholders. But that’s the point, isn’t it.

    The fact that the shareholders are earning off us is bad for us. I know it sounds corny but I have always hated the concept of shareholding.

    Shareholding is a sort of passive ownership. You share the profit but only in the manner the company lets you.

    I wouldn’t blame anyone, though. It is just that no one among us has been smart enough to invented large scale decision making.

    When we open something, it is a substitute for large scale decision making because the initiative getting distributed.

  9. typos typos

    I wouldn’t blame anyone, though. It is just that no one among us has been smart enough to (invent) large scale decision making.

    When we open something, it is a substitute for large scale decision making because the initiative (gets) distributed.

  10. Pingback: Y Combinator Challenge #16 - « A Startup A Day

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