Analysts welcome MOL deal as Friendster targets micropayments

Industry observers say it is a company like MOL, and not another social network, that will advance Friendster's status in the future.

Yesterday, Friendster confirmed that it would be bought by MOL Global - a company claiming annual revenues of more than US$1.8 billion. In a statement Friendster said this would effectively create “Asia’s largest end-to-end content, distribution and commerce network, pairing MOL’s offline retail channel partners and payment platform with Friendster’s large online footprint, social network and user community in Asia”.

Friendster’s head of Asia Ian Stewart told Media that, because the website is looking to differentiate itself through its digital payment service, the merger makes sense because MOL is the company that is best able to improve this side of its business and has the clearest reach to Friendster’s cache of Southeast Asian users.

“This deal consolidates the business direction of the company. We believe that having a strong virtual-currency offering will better connect users to the Friendster virtual store, and then into our gaming aspects and music. Through payment mechanisms, Friendster can become a social-shopping platform, kind of like eBay but on a social network,” he said.

Friendster and MOL first began working together in October, when MOL was enlisted to develop an integrated payments platform that would lay the foundation for the Friendster Wallet and the Friendster Gift Shop. Stewart said this partnership demonstrated MOL’s dominant positioning in Southeast Asia, “and in the last two months of the acquisition process, MOL joined the conversation.”

“We were gravitating to the virtual payment possibilities, and with geographic reach and users’ attraction. MOL was obviously going toward that expansion, and when we were going through the acquisition process, we were looking for a partner who would fit these criteria as much as possible,” he explained.

From July, when Friendster first announced its intentions to be acquired, the company has been vocal about wanting to find an Asian-based suitor. Friendster has made strides in centralising its operations in the region to accommodate its strong user base here: Asia makes up more than 90 per cent of Friendster’s audience, and it claims a leading position in Southeast Asia. Friendster is still the number one social networking site in the Philippines.

Rumours recently circulated of Tencent’s interest in the site, as reports noted that the Chinese online giant was on Friendster’s acquistision shortlist. Reports additionally cited Facebook as a potential early contender for the company, though hurdles related to competition and intellectual property rights prohibited further negotiations.

But according to regional analysts, Friendster did well to partner with a firm that would most adequately advance its operations and allow it to advance its brand.

“I think it was a brilliant idea – combining a platform that has immense social reach with a group of very influential connectors, and then making it easy for audiences to engage via e-commerce,” said vice-president of business development for Adify, Andrew Tu. “I think it’s a marriage made in heaven because, when you look at an acquisition, you need to look at the synergistic components that can help you grow, more than just expanding your reach.”

Jeremy Woolf, managing consultant of Text 100, also says Friendster’s move was a smart one because it enables the site to connect more effectively with local audiences, which will be key to its long-term success. “This is Friendster fishing where the fish are – it is centralising the company where it has the greatest population of users and will work with a company that will preserve the brand,” he said. “It will solidify Friendster's future as a niche, hyper-local social network.”

Stewart noted that Friendster’s focus on micropayments would give it an operating model that is more parallel to those of Japan's Mixi, Korea's Cyworld and Tencent's QQ rather than globally focused social networking sites like Facebook.

“Looking to micropayments and focusing on localised research and development makes a lot of sense,” said Mindshare’s regional business director Brian Stoller. “Look at QQ’s success – QQ makes its money through micropayments and financial transactions, and its earnings aren’t based on advertising. Focusing on this and working with a Malaysian company that specialises in it is very good on its behalf.”