Facebook is latest online business on the brink

Should Facebook stumble, it may some day be suffering the same pangs of regret tormenting Friendster Inc., which turned down a takeover bid from Google in 2003 when it reigned as Internet’s hottest social-networking site.

Had that offer been accepted, Friendster founder Jonathan Abrams and a small group of early investors reportedly would have received $30 million in Google stock that would have been worth about $1 billion today.

Abrams left Friendster in 2004 after a falling out with the company’s venture capitalists. Now working on its fourth chief executive since Abrams’ departure, Friendster so far hasn’t been able to recapture the buzz that once made it a prized commodity.

In January, Friendster attracted just under 1.3 million U.S. visitors, leaving it far behind MySpace (61.5 million visitors), Facebook (19 million visitors) as well as several relative newcomers to social networking like Bebo.com, MyYearbook.com and Hi5.com, according to data from comScore Media Metrix.

Other tales of woe are bound to emerge after the latest dealmaking cycle winds down, predicted Ken Marlin, a technology investment banker in New York.

“The world is filled with companies that waited too long to sell and missed their window of opportunity,” he said. “We think this land grab (on the Internet) probably will only last another year or two.”

Palo Alto-based Metacafe fielded a takeover offer shortly after Google and YouTube first got together in October before deciding to remain independent, said co-founder Arik Czerniak. “We are 100 percent committed to building the business ourselves,” he said.

Toward that end, Czerniak recently turned over the chief executive reins to Erick Hachenburg, a former executive for video game-maker Electronic Arts Inc. Czerniak remains an executive and major shareholder at Metacafe.

Denver-based Photobucket also prefers to remain independent as it strives to nearly double its registered users to 60 million by the end of this year, said Alex Welch, who has raised about $15 million in venture capital since co-founding the site in 2003. Photobucket’s 35 million members currently upload about 7 million photos and 35,000 videos per day — second only to YouTube and MySpace.

Other trendy Web sites that could elicit takeover interest include: Linden Research Inc., the maker of the virtual world “Second Life”; Digg Inc., which displays news stories based on the recommendations of readers; and Slide Inc., a photo-sharing site launched by Max Levchin, who already struck it rich as a co-founder of PayPal Inc., an online payment service bought by eBay Inc. for $1.5 billion in 2002.

But no startup is stirring more takeover chatter than Facebook, which began as a site exclusively for college students before opening up to high school students in 2005 and finally accepting all comers last fall.

The site now has nearly 17 million registered users, most of whom fall into the under-35 demographic prized by advertisers. And Facebook gives advertisers plenty of marketing opportunities because its users churn through about 1 billion Web pages per day.

Facebook struck its first major financial partnership last summer with Microsoft, which reportedly guaranteed to deliver about $200 million in ad revenue through 2008. Zuckerberg said the advertising contract with Microsoft recently had been extended through 2011. Terms of the extension haven’t been disclosed.

Although he dropped out of Harvard in 2004 to move Facebook to Silicon Valley, Zuckerberg still leads the ascetic lifestyle of a college student even as he runs a business with 200 employees.

Zuckerberg says he keeps little more than a mattress in his apartment, which is located just a few blocks away from Facebook’s office. The proximity allows him to walk to work every day, usually wearing Adidas sandals ideally suited for lounging around a campus dorm.

Being comfortable is important to Zuckerberg because, like so many of the Silicon Valley prodigies before him, he tends to spend long hours at the office plotting strategy.

“For now, I just think it’s very important to have a good sense of direction about where we are going,” he said.

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