Why ITV failed Friends Reunited
Updated on 04 March 2009
I'm probably one of the few people who think that buying friends reunited wasn't a particularly stupid act by ITV.
Sure, the channel paid well over the odds, but it was one of the most visited and hottest British websites back in 2005.
It mirrored the £330m takeover of social network MySpace by the Rupert Murdoch-owned News Corporation.
Arguably it was ITV's management of the site that led to today's annoucement that it was looking for a buyer.
I have a little personal experience of selling an internet company to an "old media" company who didn't quite understand the web and ultimately didn't capitalise on its potential.
Back in 2005 ITV had no real web presence.
Had ITV braved ditching the subscription fees on Friends Reunited as soon as it saw the growth of free sites like Facebook, my guess is that it would be in a much stronger position today.
G-Wizz, the Granada owned portal and internet service provider closed in 2001 and ITV hadn't properly launched itv.com. There was certainly no streamed content and no online revenue.
Taking over Friends Reunited taught ITV a lot about how the web works, introducing them to online advertising and as Michael Grade said today, itv.com wouldn't be as big as it is now without Friends Reunited.
While you can criticise ITV for paying so much - £175m over three years - its real failure was with the management of the site.
At the time of acquisition it was a hot social network, but its massive revenues were from subscriptions rather than from advertising.
You had to pay in order to get the contact details of the friends you were reunited with via the website.
But during 2006, while Michael Grade was chief executive, there was an even bigger explosion in social networking.
Bebo, the British-founded site began to take market share away from Friends Reunited, primarily because it didn't charge a fee in order to maximise the use of the site.
US-founded Facebook was starting to eat into the UK market.
If you were a student in Britain by 2006, you were likely to be a member of Facebook, Myspace or Bebo. You would be staying in contact with friends constantly, so the need to visit a site like Friends Reunited disappeared.
In 2007, the use of Facebook expanded beyond students and started to be the "in site" on the web and everyone who was anyone became a member.
Krishnan Guru-Murthy talks to Michael Grade
Still through all this time Friends Reunited, owned by ITV, continued to charge a £15 a year subscription fee, managing to retain a shrunken, and certainly not growing, audience.
The paradox is this - because it charged a fee, Friends Reunited actually made money unlike many of its newer, free rivals. The advertising revenue from social networking users is little more than £1 a year.
But the fee meant it couldn't grow and slowly the paying audience dwindled further. Last April, ITV dropped all charges on the site, relying solely on online advertising and the website did see a temporary boost in users.
Unfortunately for ITV, social networks rely on a critical mass of users. You're unlikely to continue to use a site that you don't know anyone on.
Faced with signing up to Facebook or Friends Reunited, you'd probably plump on the former.
Had ITV braved ditching the subscription fees on Friends Reunited as soon as it saw the growth of free sites like Facebook, my guess is that it would be in a much stronger position today.
The fact that it paid so much for Friends Reunited meant that ITV required much greater returns on investment than the site could ever achieve.
