Sample Case Study On Friendster And Value Chain

Introduction

‘How to Kill a Great Idea’ by Max Chafkin is a documentary of the rise of Friendster, one of the world’s first social networking site and the people and circumstance that brought its fall. Chafkin’s documentary touched on Friendster’s history from the time it was conceptualized by its founder and on how it became one of the biggest social media site until it ran out of business. While Chafkin’s story is focused on the historical side of Friendster’s experience, this paper would like to investigate Chafkin’s account using the value chain management perspective. The value chain has been defined as “activities that work together to provide value to customers”. Most scholars believe that the concept of ‘the value chain’ has been around for several years already. However, the term ‘value chain’ first emerged and popularized by Michael Porter in his book ‘Competitive Advantage’ in 1985. Porter’s value chain is composed of several elements that he dubbed as primary and secondary to the delivery of a product or service. Among the primary activities that Porter identified are (1) inbound logistics, (2) operations, (3) outbound logistics, (4) marketing and sales, and (5) service. Aside from the primary elements, Porter’s value chain model also includes secondary elements, which he refers as support activities. These secondary elements are infrastructure, human resource management, technology development and procurement. Using Porter’s value chain model, this paper would like to evaluate Friendster in a ‘value chain’ perspective. First of all, this paper would like to know if there is a connection between value chain management to purely online business such as Friendster. Also, it is desirable to determine what were the important principles of value chain management that applies to Friendster that may have affected its performance?

Article Summary

Friendster was officially launched in March 2003 by Jonathan Adams, a software engineer in Silicon Valley. Originally designed as an online dating website that would compete with Match.com, Friendster became enormously popular because of the new features it offered that allowed its users to interact not only with friends but with the friend of friends as well as their acquaintances. As observed by Chafkin, “Every time a homepage loaded, Friendster's servers calculated a single user's connection to other users within four degrees of separation, which could mean hundreds of thousands of individuals” (Chafkin, 2007, p.88). In a way, Adams may not have invented the world’s first social network but he sure created the first system that enabled its users to create a vast network individually. Unfortunately, while Adams’s Friendster system is ideal for social networking, it also demands enormous support systems in terms of hardware and software technology. Theoretically, Adams’s system was considered as the ideal social networking system but in practice, it was an expensive and very difficult system to maintain. As observed by Chafkin, in order for the system to run and serve millions of clients, it requires enormous amount of expensive Random Access Memory (RAM). Evidently, because of the enormous network associated with an individual as well as the constant expansion of each network, every time a user log in, the system would have to calculate enormous information within split seconds. Adams’ system at first was able to support the network demands but as users began to incrementally multiply, system problems began to emerge. Soon, because of users began to complain about the slow connection and down times. As observed by Boyd and Ellison, “Friendster’s servers and databases were ill-equipped to handle its rapid growth, and the site faltered regularly, frustrating users who replaced email with Friendster”. All along, as Friendster becomes popular, a team of highly qualified personnel were hired to professionally manage Friendster but this move seemed to worsen the already ailing company. Executives seem to have a lot of ideas and not one is willing to agree with the other. As a result, Friendster’s management team could not get anything done, which further worsened the company’s position. Adams, on the other hand, was well aware of the problems that his company was having but instead of making the minor fixes that could have greatly improved the site’s performance, his attention was caught on making TV and media appearances; leaving the running of his highly technical business to management professionals. Later on, several competing social networking sites emerged that followed on Friendster’s concept; the most notable of which are My Space, Twitter and Facebook. It was also found that these sites are taking Friendster’s share of users in huge numbers most especially its American market. It is also interesting to note that most of Friendster’s users were not from the United States, making them worthless to American advertisers. In the end, what was once a very promising online multi-million business is now considered as “the biggest disappointment in internet history”.

Value Chain Perspective

It is quite difficult to relate the principles of supply chain management to online businesses because of the virtual nature of their product. Apparently, social networking sites such as Friendster does not have any tangible products and supply route that is common among businesses that operates using tangible products. Even so, there are certain principles of supply chain management that applies to all type of businesses; even purely virtual business such as networking sites. This paper would like to analyze Friendster’s demise using Porter’s value chain model as shown below:
Figure 1. Porter’s Basic Value Chain Model.
As shown in the model above, the five primary activities are those that are directly concerned with the creation and delivery of the product or service while support activities are those activities that are linked to the primary activity to help improve it. In the end, these activities help add value to the product and the final test is determined if the customer is “willing to pay more than the sum of the costs of all activities in the value chain”. Below is the analysis of Friendster under Porter’s value chain primary activities:
Inbound Logistics may have little or no relevance to Friendster’s value chain activity. Evidently, the site draws on its service from the established internet infrastructure and most of its material and human resource are from the United States.
Operations refers to the actual production process from the creation to its finished product. In the case of Friendster, this includes software and hardware component of the system.

Outbound Logistics is highly dependent on the existing internet infrastructure of the market, which Friendster has little or no control.

Marketing and Sales refers to “attracting potential customers and convincing them to make purchases”. Friendster have been initially successful in Marketing and Sales but eventually ended up missing their target market. As observed, instead of attracting American users, Friendster attracted users from the other side of the globe, which is of little value to the site’s patrons and advertisers.
Service refers to the assistance provided by the company to their customers. In the case of Friendster, little assistance has been provided to their users giving their users no option but to use other services. With the site always having technical problems, most of their American users moved to other social networking sites such as My Space, Twitter and Facebook
The efficiency and quality output of the primary activities, on the other hand, depends heavily on secondary or support activities. As it relates to Friendster, these activities are:
Infrastructure – Friendster, just like any online services, rely on the internet infrastructure. There is no question that its target market in the U.S. already has the best infrastructure for the delivery of their services. However, with the traffic and bandwidth caused by numerous users, the present internet infrastructure in the U.S. is not able to support Friendster’s system. There’s not much that can be done with the existing U.S. internet infrastructure but there could have been improvements that can be made on Friendster’s system, which could have drastically changed its delivery of service. Friendster should have focused on improving their system both in their software and hardware infrastructures.
Human Resource Management – Pertaining to the recruitment and managing employees, Friendster has greatly blundered on this area. Contrary to his belief that an all-star management line-up would spell out success, Adams found out that this type of management structure creates more conflicts. Also, Adams failed to have an active role in running the company, leaving its management to outsiders who have little knowledge on the technical aspect of their service.
Technology Development – A great deal of improvement is needed for Friendster in this area. While Adams was the first one to come up with a social networking concept, he failed to follow through because of external influences that deviated his attention.
Procurement – Being the “process of negotiating for and purchasing raw materials,” procurement has little to do with Friendster. This secondary activity can be neglected.

Conclusion

Apparently, Friendster failed to deliver the expected results because of issues in its value chain management. As observed, the company focused more on marketing and selling without first improving the value of their basic or core product, which is providing reliable social networking. The Friendster experience proves that value chain activities are extremely important because in the end, customers will be willing to pay only for quality and reliable service.

References

Dagmar Recklies. (2001). The Value Chain. Retrieved April 2015, from http://www.fao.org/: http://www.fao.org/fileadmin/user_upload/fisheries/docs/ValueChain.pdf
Boyd, D., & Ellison, N. (2008). Social network sites: Definitions,History and Scholarship. Retrieved February 2015, from http://onlinelibrary.wiley.com/: http://onlinelibrary.wiley.com/doi/10.1111/j.1083-6101.2007.00393.x/pdf
Carpenter, M., Bauer, T., & Erdogan, B. (2011). Principles of Management. Irvington, New York: Flat World Knowledge.
Chafkin, M. (2007, June). How to Kill a Great Idea. INC. Magazine, pp. 85 - 91.
Feller, A., Shunk, D., & Callarman, T. (2006, March). Value Chains Versus Supply Chains. Retrieved April 2015, from http://www.ceibs.edu/knowledge/papers/images/20060317/2847.pdf