Web Masters Episode #78: Andrew Conru

FriendFinder Review April 2022 - Scam or good for finding true - DatingScout

Andrew Conru:

I think relationships and friendships can form in all sorts of types of backgrounds and so spinning out different skins and different niche categories was a thing that we did for the next couple of years. From probably ’96 to 2000, we came up with around 20 different niche sites from anything from the whips and chains BDSM crowd, to the gay crowd, different languages, Chinese, German, French, each one of those had their own separate site.

We even had a site for Christians called Big Church where you could hook up with people based on their affinity for different Bible verses. I mean, it was just different ideas that you said, “Well, well, okay, there might be a community we could build for that.” We had the engine that enabled you to crank them out. Each one was a couple of weeks’ work, a couple of templates and away you go. Then you try to market it by crosslinking the different sites.

When you start doing advertising, it doesn’t take that much more effort to throw in different banners for different sites. You just make a collection of that because the idea was a site like Match.com was like one-size-fits-all type dating. This was back before they had the conglomerate of all their different niche sites for themselves, but people would self-select based on what the description of the site was for.

Gay men don’t necessarily want to be hanging out with lesbians and straight people. If the site was only for gay men, you would get a higher conversion rate. By pulling out these different niches, we were able to get better ROI in our ads and basically grow that way.

Aaron Dinin:

I believe the colloquial phrase here is different strokes for different folks, or at least that was the approach Andrew Conru took to his dating websites. He’s the founder of the FriendFinder Network, a conglomerate of dating websites that perhaps most famously includes Adult FriendFinder. It was the internet’s OG hookup website, and it’s actually still one of the world’s most popular hookup websites. The story of FriendFinder is much more than a story about a single website. Are you ready to hear it? Okay, then. Let’s get dialed in.


Aaron Dinin:

Hi there and welcome to Web Masters. This is the podcast that’s going to help you become a better entrepreneur and it does it by giving you stories from some of the internet’s most impactful and successful innovators. My name is Aaron Dinin. I’m your host. I’m a serial entrepreneur and I teach entrepreneurship at Duke University. If you’ve been listening to Web Masters for a while, then you know that dating websites have popped up a few times here on the show.

We’ve got the story of Match.com from Gary Kremen. That’s Web Masters episode number 50. We’ve got the story of OkCupid with Sam Yagan. That’s episode number 35. We’ve even got the story of a company called Operation Match, which was offering computer dating services back in the 1960s. That by the way is episode number 36 with Jeff Tarr.

In those episodes, we dealt with dating as a fairly wholesome and mainstream thing, but you know, we’re all adults here and we all understand that dating sometimes isn’t just about building long-lasting relationships. This episode’s guest, Andrew Conru, wasn’t afraid to embrace that.

In doing so he built an incredibly successful company. We’re going to hear all about it. But first, and speaking of successful companies, we’re going to take a moment to hear about this podcast’s sponsor.

Web Masters is being brought to you with the help and support of our sponsor, Latona’s. Latona’s is a boutique mergers and acquisitions broker that helps its customers buy and sell cash flow positive internet businesses and digital assets. That includes things like e-commerce stores, Amazon FBAs, domain portfolios, SaaS apps, content websites, and yes, even dating websites.

If you own a profitable internet business, and you’re thinking of selling it, make sure you take a few minutes to reach out to the team at Latona’s. They have tons of experience selling companies just like yours, and they’re going to be able to help you through the process and make it way easier than it would be if you tried to do it all on your own, or maybe you’re thinking about buying an internet business.

Latona’s can help you too. Start by making your way over to the Latona’s website where you’ll find tons of listings for all of the businesses they’re currently helping sell that website is latons.com, L-A-T-O-N-A-S.com.

Websites today are about as mainstream as pretty much any type of business you’ll find online. Heck, the Match Group, which runs Match.com as well as Tinder, Hinge, Plenty of Fish and nearly 50 other dating websites is a publicly-traded company with, as of this recording, a market cap well in excess of $30 billion. But online dating wasn’t always so mainstream. Part of that was of course cultural expectations around online dating.

I had to argue there was an equally large technology issue. In the early days of the web, there were actually lots of dating websites, but they weren’t particularly good. Remember, the technologies to run a high quality online dating website, a place where people could post photos, exchange messages, those kinds of things weren’t actually very common or easy to come by.

Andrew Conru:

By 1996, there was over a hundred little websites that were doing online dating. Most of them had a few hundred people, maybe a thousand people on them. For the most part, most of them were simply just a list of personal ads with the email address publicly shown saying, “If you want to contact me, here’s my email address.”

What obviously we had to do right away is educate all these people that FriendFinder was here and on FriendFinder, you anonymize who you were by using user names. The reason why there were so many simple dating websites at the time was that it didn’t take that much coding skills in order to put a list of people along with their email address.

A full social networking site, you had to have a database, you had to have a way to relay messages between different members on a website and do this anonymously. That took a lot more development time than these people could afford. Since I was doing development for a couple of years and I had software to speed it along, I was able to do almost all the development of them myself.

Aaron Dinin:

As you heard Andrew mention, even in the early days of the web, he was already skilled and experienced building what he described as social networking websites. I’d used the phrase interactive websites. It’s actually that skill combined with an early entrepreneurial background that led him down the road toward building FriendFinder. Let’s kick things off by learning a bit more about how that skill developed.

Andrew Conru:

My first computer was probably 11 in 1981 or so. My mom gave me a VIC-20 Commodore computer. Had 3K of memory, had no way to save any data, so when you finish your program, you basically turn off a TV and away it goes. That was my first computer. Then it was a Commodore 64, then an early PC, blah, blah. My first experience with the internet was probably in ’92 at Stanford at the Center for Design Research.

One of the other students there, it was actually a student faculty member, set up the first a web server and we put our small department online and I was totally hooked. You basically create a little text file, save it and immediately a whole internet could get it as long as you can dial up on a modem or something. That was the earliest phase, probably 1992.

Aaron Dinin:

You were experimenting with computer networks pre-web, right?

Andrew Conru:

Before the worldwide web, there was dial-up connections and bulletin boards and that. In undergrad, probably around 1988 or so, a friend of mine had a modem and he dialed up to something and downloaded a file. That was mind-blowing to me, just that. From your desktop on your desk, you can spin a hard drive in another part of the world and get data from it.

I was a mechanical engineer undergrad so I never really understood the networking side of things yet. This is all black magic voodoo to me. The internet stuff, I guess it was mostly starting in the bulletin board times and so it really wasn’t the internet, but the idea of centralizing around a particular location where people anywhere around the world can post and read other comments was probably the precursor to the internet.

When the internet came out, I already had the working vocabulary of what it would be like to post something and everybody else can see it. It was just another way to do it and obviously a much more simpler way to do it with a browser.

Aaron Dinin:

According to what I’ve read, you have a PhD in mechanical engineering, is that correct? How did that lead you to starting your own businesses? How did you become, for lack of a better word, entrepreneurial?

Andrew Conru:

Well, I grew up in a rural area in Indiana with steelworker as parents. My mom and dad both were steelworkers. My mom electrician at the steel mills. They had this can do attitude where it’s like, whatever we wanted we can build it. I think that’s where you get the idea of being an entrepreneur. You don’t have to have somebody give you the framework, you just go do it.

I made small little businesses when I was in high school and such selling things to neighbors and that type of thing. In undergrad, I bought a house when I was a sophomore and rented it out to other students. I was always trying to find ways to put my way through college. Back then my parents could support a little bit, but I wanted to do most I could myself. I was entrepreneurial there.

When I went to Stanford you have a lot more free time once you finish your grad student work. A couple of years of doing that, I had most of my work done. When the internet came out I was like, “Well, there’s an opportunity here. I can make some money on the side.”

Aaron Dinin:

What was your first internet-based business?

Andrew Conru:

I was at a government conference. Local governments in the Bay Area got together and talking about new technologies and the internet came up and I made it known to some people there that I built some things on the internet in ’92 or so, and I could do this commercially for somebody. Somebody from the Association of Bay Area Government, called ABAG was looking to be on the forefront of technology.

They took me up on my offer on the spot and gave me a contract for $8,000 to build a website for them. $8,000 in ’93 is around, I don’t know, 25,000 today. As a grad student, you’re like, “Holy crap. I could do this in a week or two, and this could make a business out of it.” I knew how to do a little bit of a startup. Back then there wasn’t a roadmap on how to do a tech startup. It was just more like, I know I needed an office.

I know I needed to get some type of internet connectivity. I mooched off of Stanford for a little bit on my kitchen table at campus, but then quickly got a small office in downtown Palo Alto, had a friend who had a T1 line, which was just mind-blowing. We were just so stoked that this was what Bill Gates had at his house. It’s like, “Wow, Bill Gates could have it and I could have it in my office.”

A T1 is 1.5 megabit. Your phone has an order of magnitude more of that and we think nothing of it, but this was for our company and we’re hosting stuff. I could do a little graphic design, Photoshop type stuff. I was able to do most of the work for ABAG, but then I started hiring other grad students who were looking for part-time gigs and I had probably a dozen or so developers.

This is ’93 or so. I didn’t get my PhD done until ’97, so you could tell I was not well-liked by my professor. I, more or less disappeared for a couple of years working at night on my PhD while during the day I was running this company.

Aaron Dinin:

That’s great. That reminds me of my own journey. I was not the best graduate student because I was basically too busy running my own companies. Kind of like you. I like to say my school eventually kicked me out with a PhD. Anyway, it sounds like you started off basically doing a consulting company, right? Which of course is how lots of tech entrepreneurs get their starts, myself included.

Andrew Conru:

People mostly just wanted static pages so that was a piece of cake, but I wasn’t interested in static stuff. I wanted to do something more interactive and two-way.

Aaron Dinin:

That would’ve been very unique at the time, right? Because the early web was pretty much all static sites.

Andrew Conru:

Well, one of the things that you can imagine, in 1993, when you start talking about the internet, almost nobody had a clue what that meant, especially when you said worldwide web, might have heard it on the news somewhere or that, but they had no idea what the capabilities were. What I had to do in order to get contracts is to show proof of concepts of what you can do with this technology beyond simply just putting brochureware up.

I created a couple of mock demo sites, a restaurant review site, a real estate website, and an online dating site called Web Personals.

Aaron Dinin:

Okay. You actually launched your first dating website as more of an experiment or series of experiments, really as kind of a proof of concept rather than a business. Am I understanding that correctly?

Andrew Conru:

Yeah. Interactive websites are different than just static websites and the key differences that you can upload data from the user to the centralized website and aggregate it and then make use of that data to provide more value to the collective of people than each one individually. The real estate guide was a trivial one because that was simply a directory you can search for.

Basically everything was in a real estate magazine. I photocopied and put into the thing. It was a total gimmick site, but the restaurant review site was probably the first one that I created simply because everybody was interested in finding restaurants to go to. Being a grad student, who’s busy as sin and never got out of campus, it was a thrill to me to see what was out there beyond the Stanford farm as you will.

That was a site where I basically made it so that people can do almost everything you could do on Yelp but in 1993/94. There’s a directory of restaurants that I got from some sort of a mailing list. You can search by location. You can browse by city and such. You can upload reviews of restaurants, and then you can figure out which are the best restaurants in certain areas. It had collaborative filtering.

You can say if you like this restaurant, you might like other restaurants because of the overlap between you and other people on the website. It also had interactive maps. This was using U.S. GIS data. A friend, and I worked together to create a bunch of … I think they were GIFs, basically tiling of a map that you can zoom in and zoom out. We put little pins where all the restaurants were at, Google Maps, precursor to it.

That was a lot of fun, but that was the first proof of concept. I realized the value of data, the more data you get, the more cool things you can do with it.

Aaron Dinin:

Wow. You basically built a version of Yelp before Yelp existed, like a decade or more before Yelp. Out of curiosity, why do you suppose that didn’t end up going anywhere?

Andrew Conru:

I was looking back on how many restaurant reviews we had. We probably had a quarter million restaurant reviews because eventually I started replicating it across the country. Frankly, there wasn’t any monetization component to it because there wasn’t really an ad network that you can sell ads on the thing. It was more of a labor of love. The restaurant guide, it wasn’t really set up to be a business thing.

It was simply more of a proof of concept that just sucked more and more of my time on it. Almost with all my early ventures, I didn’t do the VC route, except for one of them, which burned me for life for VC. So I don’t necessarily recommend people running to the VC right away for it. One of the problems with a bootstrap is you have to do everything and you have to do it in this case without a revenue stream. Unfortunately the restaurant guide didn’t take off.

Aaron Dinin:

Can I assume that the dating website had more success? That was a company called Web Personals, right? Which you actually end up selling, according to my research, at least. Can you talk about how that got started and what happened with it?

Andrew Conru:

I’d recently become broken up with a girlfriend of long time and I was getting into the dating scene in the Bay Area and it was basically archaic. I don’t know if people would recall, but back in the day, pre-internet, people would post two or three-lined cryptic messages in a classified ad in the newspaper. These were a terrible way to describe yourself, but that was all you had. Then you had to dial a phone number and leave a message to an ID.

If that person wanted to call you back, they would call back. It was just a nightmare. I said, “Well, shucks, I can just recreate the same restaurant guide but instead of restaurants, I could put people in.” Basically you’re marketing yourself. This was the first online dating site on the internet. It was about maybe four or five months before Gary Kremen and Match launched.

I think it wasn’t like one person invented it before the other person, it was basically the idea of, well, eventually we’re going to have classified ads online, is a no-brainer. It was simply just who implemented it first. By implementing Web Personals first, I was able to put it in bulletin boards and promote it that way. Being the first site, you got some press and some other things on that, but it was totally bootstrapped.

It was a hobby that I did at night and then between 9:00 PM and midnight or so I’d work on my thesis projects. I put things in order.

Aaron Dinin:

Yes, I fully agree. In fact, I always tell my most entrepreneurial students that they have to learn to prioritize. Sometimes I understand that their schoolwork for my class is actually less of a priority for them than their startups and that’s okay, that’s a choice they have to make. It has consequences, but it’s important to, again, do this prioritization.

You clearly made your choice and seems like it worked out. What ended up happening with that dating website?

Andrew Conru:

I had about 200,000 members when I sold it to a company which eventually became Telepersonals or at least became the website for Telepersonals. It conveniently had a similar name with Web Personals. As far as marketing on that, well, it was done through bulletin boards, word of mouth, some press. There wasn’t a commercial aspect to it. It was all free, no ads, no subscription at that point.

Once again, it was simply done to prove the software that I was working on had merit because one of the things we did instead of writing a custom code for each website we created, we basically created a framework for creating websites in which you have software that runs all the interactive parts of the website, but you’d create a series of templates.

The software would read in the template to display to the users to interact between the database and the website. This was a way that we can use the different website creations that we made as proof of concepts for the underlying software that we then would sell as a package, basically a line item to the consulting work that we did. HP would come to us and wanted an interactive website.

They would say, “Hey, we already got a static website with a bunch of webpages on it, but we want to have a login. We want to have access control and things like of that.” What we’d do is we’d sell them our software package called the Personalized Website and then that’d be a line item like 3000 or 5,000 or something on top. It was basically pretty money for something you’d already have. All the extra customization and design work would be on a per hour basis.

That’s how you’d build out a project, using the websites as a test bed to create better software that you can build over time. Eventually that software became something we tried to sell for a couple of years as a standalone. We got into the software business because we found that that was much more profitable if done at scale than try to do a consulting gig.

Aaron Dinin:

It sounds like that dating website wasn’t really your main thing. Was it just a side project or experiment that you eventually sold? That wasn’t FriendFinder, right?

Andrew Conru:

The thing about FriendFinder, which I think I launched in May 1996, I had already been doing social media type websites for two or three years by that time. The restaurant guide and the Web Personals sites were more or less social networking sites where you basically aggregate data from people and then give more value to them. When I sold Web Personals, I think I got a hundred thousand dollars and a one year non-compete.

When you’re a grad student … This sold in 1985. A hundred grand is 250 grand. It was like … I call them base hits. Entrepreneurs need to get these base hits under their belt. They make enough money that they can think more strategically later. That was the reason why the sale was good because after that non-compete was over, I knew that when I create the next one, I can do better because I’ve learned a lot in those two years.

The day after the non-compete ended, I started working. Now, if I was thinking better, I could have said, “Well, I should have launched a year after the non-compete, but I’m still working on my other companies. It was kind of in the back burner. A friend of mine said, “What’s stopping you from creating another dating site?” The internet was early. It took a couple of months of coding up and then we launched in May 1996.

Aaron Dinin:

You launched FriendFinder, you’re basically doing things over again. Now you know more about building a dating website. What did you do right the second time? How did it grow so successfully, especially versus the other hundred or so dating websites that were already out there, which is what you mentioned earlier?

Andrew Conru:

Yeah. Well, the easiest way, I think I alluded to, that most of these very simple dating sites were just a list of dating ads plus their email address. Now, anyone who knows how to write a scraper, basically a software to go suck down every webpage of a site and extract out their email address would see the gaping marketing hole here that they created for us.

We were able to go to all these little tiny websites and send each of their members there, basically a spam email. Back in 1996, there wasn’t really the concept of spam because people really didn’t get that many email to begin with, so that when they did get email, for the most part, it was legitimate email.

What we did is we emailed everyone who put their email address publicly to say, “Hey, FriendFinder is here. One of the cool features is that your email won’t be displayed to everybody.” We had phenomenal response rate. We had over 30% of the people that we emailed, went and registered, and became a member of FriendFinder. Now, anybody who does email marketing today is normally you get like less than a 1% return rate on it.

Getting 30% was phenomenal and simply just because it was a game-changer for what they had experienced before. Once you start getting critical mass, size begets size and dating is one of those winner take all categories where just like eBay, Facebook, YouTube, Twitter is that the economies of scale when you get it big, you get more benefit the bigger it gets. We did the other types of marketing.

We posted in every bulletin board we can get to, word of mouth, some pick-up in media, but very little because we didn’t have money to hire a marketing staff. That’s the advantage of doing some VC is that you can loss lead. You can start spending money now to make money in the future, but you can’t really do that when you bootstrap. We were on the hip.

Aaron Dinin:

It was just word of mouth and hustling and maybe some luck? I guess, what really ended up moving the needle or was it a combination of things?

Andrew Conru:

One of the things that was a game-changer for us in terms of getting traffic was getting cool shades on Yahoo. Now, Yahoo was started by David Yang and David Filo at Stanford. They were Stanford GSB guys, and people today might not understand what the advantage of getting cool shades on Yahoo meant, but it was huge.

There were hundreds of these little websites that were doing dating that were listed in a directory on Yahoo. We have hundreds of them on a list. People would just go to the top and go down. If you were on the top of the list, you were not clicked on, but what Yahoo did was they created cool shades. What they did is they selected among hundreds of different websites, what they thought were cool.

When it came to online personals, there were only two sites that got cool shades, Match.com and FriendFinder. Being one of two out of hundreds of sites that had cool shades meant you get a huge amount of traffic. About a third of our sing-ups came from those cool shade links that we got on Yahoo.

Aaron Dinin:

I just want to take a moment to highlight this cool shades being featured on Yahoo thing. Specifically, in any entrepreneurial success story I like to make sure people listening, understand that there’s no magic. There can certainly be luck, but no magic. Based on Andrew’s story, it sounds like being featured by Yahoo was a huge driver of initial awareness for FriendFinder.

If that hadn’t happened, well, FriendFinder might not have become what it became. Anyway, I point this out because if you’re the type of entrepreneur who thinks, if you just build something awesome, people will magically find it, well, that doesn’t really happen. Your customers have to find out about you somehow, which means a marketing strategy, something lots of entrepreneurs overlook, is as important, if not more important than a product strategy, which is what most entrepreneurs tend to focus on.

If anything, product strategy comes after a marketing strategy. In other words, once you get users and/or customers, then it’s time to respond to what they’re actually showing you they really want. This, by the way is exactly what Andrew did with FriendFinder. It’s actually how Adult FriendFinder, which was the more popular version, came to be.

Andrew Conru:

It was more than just a online dating site because we had multiple categories. We had obviously the simple ones of men seeking women, women seeking men, men seeking men, and women seeking women. We also had activity partners and pen pals. Because we realized the internet was going to facilitate relationships of all types. Fundamental to that is friends, and so when I started FriendFinder, I picked the name FriendFinder because I wanted it to be about relationships.

I thought fundamental to all types of relationships is being friends with somebody first. That’s how we called it FriendFinder, and not something like Match.com because we wanted to be more than that. With FriendFinder, we had all those same categories that we had on Web Personals and we were going mostly for the mainstream market.

What we found though is when we did content review, every time someone would upload a photo or post a profile, we went and would skim it to make sure that it didn’t have questionable content or was an ad or whatnot. What we found very quickly is that a small percentage, maybe about 10% of our members wanted more than just friendship when it came to online dating, they were looking more for sex.

How it manifests is when you do a photo review, you have to approve it or not, well, obviously people started uploading nude photos of themselves. Even though I have a Christian background and I had this thing where it’s like, “Well, we probably don’t want to have nudity on the website because you would drive away the core audience.” We kept deleting these nude photos and the profiles associated to them.

After a few weeks of doing that, I’m not necessarily a prude or anything, I said, “Well, how about I’ll create a duplicate website, use the same software and just redirect people who upload nude photos to it. I’ll call that Adult FriendFinder?” In fact, it was simply a subdomain, adult.friendfinder.com.

It took me about two weeks or so to copy the software, update the templates, because it’s basically a templating system so they can share the templates except for the URL or the name of the website was different, maybe some graphics. It was a fairly easy thing to do to replicate the software and reuse it.

We launched Adult FriendFinder and Adult FriendFinder took about three or four months before it had more members on it than FriendFinder. It was the first online dating site that allowed nudity. I never really call it pornography. I just call it adult content. It was basically dating ads where we don’t have a restriction that you can’t upload nudity on your profile.

Aaron Dinin:

To get to the elephant in the room, I guess, what was that like? What was the experience of having this much more popular dating website than FriendFinder that was classified as adult and maybe even pornographic in nature?

Andrew Conru:

Actually profiles that have nude content or adult content on it were on some regards more honest and straightforward than the ones for mainstream audiences, because mainstream audience, no matter how many times people say, “Oh, one of my favorite things to do is walk on the beach hand in hand with my date.”

Tinder and hookup culture has identified there are other people who want to be more direct and honest about what they want. For some people, they weren’t looking for long-term relationships. They were looking for hookups. Other people were looking for more the esoteric things like the swingers wanted a threesome or couples hooking up. All that type of sexual behavior needed an outlet on the internet and I was not too shy to do it.

Aaron Dinin:

I imagine you must have encountered some unique challenges running an adult-themed website. Are there any ones you’d mind sharing with us?

Andrew Conru:

Well, obviously the first one is staffing. It was hard to get staff to join us until the dot-com bomb happened in 2000 and so many people were unemployed who had internet experience. We were able to professionalize our staff almost overnight. It was a blessing for us because we didn’t get money through advertising, which collapsed, but we got money through subscription. We were able to come out ahead of that.

There’s really not that much difference between a mainstream dating site like FriendFinder, or let’s say Match at this point and a site like Adult FriendFinder, other than they have nudity in their profiles. We have to be careful about things such as fake profiles. Match.com has the same problem as well. In fact, they just got sued a couple of years ago for promoting fake profiles as real.

This is a problem that goes across the entire dating world because it’s so difficult to determine if someone registering, if they’re real or they’re spam or they’re fraud people. You really can’t tell until they start behaving in ways that you can identify them. It has nothing really to do with the adult content on it. When you start having adult content, you do have to be a little more concerned about people underage, for example.

Whereas when somebody’s at 17 using Match.com, you could say that there’s less risk than someone at 17 on a dating site that has nudity. For the most part, the risk I think are the same. We had to be careful about looking out for prostitution, which could happen on any site as well. We review all content and respond to member complaints when somebody goes off their terms of service.

I never really thought that adult dating was that much different than mainstream. There was a gray area. Do we need to get a driver’s license and proof of age of everybody who uploads photos of themselves if they contain nudity? It’s one of the things. There hasn’t been a lawsuit yet to prove that you don’t need to do this, but almost for the last 25 years, we have allowed people to do it on a First Amendment basis.

It’s their right to upload nude content without having their privacy curtailed by giving their driver’s license and proof of who they are.

Aaron Dinin:

I heard you reference monetization strategies in that answer and your business model. Could you tell us more about that too? How did you first start monetizing FriendFinder?

Andrew Conru:

Yeah. When we first started, it was completely free because obviously you’re trying to build up critical mass and you want to get as many people. It was probably free for the first six months. We had a couple of hundred thousand people by that time. We wanted to find a way to monetize it without putting a paywall up because this is late 1996 and people were not too familiar with putting credit cards online anyway.

We created a program in which we would highlight your profile for, I think around $10 a month. We made this completely optional. Your profile would show up first on the search results, but you can still use this site completely free for everything else in terms of contacting people. That was a way to introduce a paywall to people to get value to do that. We put the order form up. We didn’t have any expectations that we’re going to make money or not.

We just put it up to see what happened. We put a little bell that would ring on our computer every time an email would come in with an order. We went back to work. Five minutes later, the bell went off and we all were like, “Oh my God, we got an order.” We said, “Well, if we got an order every five minutes …” I think it was like 2000 we’d make in a day. It took another day before we got the second order.

We showed that it worked. We showed that people would actually type in their credit card online. That was huge back then because you didn’t have SSL, you didn’t have encryption peer-to-peer. There’s still a fear of giving your credit card to an anonymous thing on the internet. Eventually over time, customs changed and now people don’t think twice about doing it.

Aaron Dinin:

You monetized based on subscriptions, you already told us you didn’t take VC and you bootstrapped the business. Can you give us a sense of just how big this company got?

Andrew Conru:

Yes. We didn’t take any VC to start FriendFinder. When FriendFinder started, we only needed technology, things that I could do and my partner could do. We can build websites. Once you build a website, the marketing was free at that point. It was possible to get traffic without spending money. One of the reasons why people get VC is that they can spend to build a critical mass by advertising their product. Once they get a critical mass, then they can start monetizing it.

It’s a pump priming thing. When it comes to online dating, especially back then, since it didn’t cost much to get a critical mass of users, because you’re one of the first sites out there, you could do this without spending money upfront.

Once you got the critical mass, then we started getting a little bit of revenue by putting the order form up and a certain percentage of people were doing it, enough that we could start paying for our staff to do the customer service on it, which also wasn’t very expensive to do because we are paying people $10/12 an hour. You didn’t really need that much.

We were in a sweet spot that a product was fairly cheap, you didn’t have a marginal cost. Every new person came in, it didn’t cost you much to service that new client. We were able to get in and get to a critical mass before we had to start spending money. We started spending real money in our affiliate program, where at some point we were spending probably 50% of our revenue would go back to our affiliate program.

In fact, for the most part, our affiliate program typically pays out about 50% of what we make. $10 came in, we’d give $5 to our affiliates. In fact, most of the affiliates have switched over the years from a per click to a percentage basis. When you’re on a percentage basis, you can factor in that you’re going to make profit on every ad buy that you make, or every affiliate who sends traffic, you’re going to make money on it. That enabled us to keep growing.

As far as size, probably within the first two years, we were about a million or two, a year of revenue. This is probably by 1998. Then especially after the dot-com crash happened and we were able to hire more staff, including a lot of marketing people, people who did traditional ad buys and such, and we were able to then become much more mainstream in our technique of how to get traffic, it was just growing month after month.

In fact, we had a program that we gave 1% of people’s salary bonus every time we had a month over month record revenue, and we gave that out 49 months in a row. This probably between 2001 and 2005. That was mostly because we were riding the wave of the internet, but we were also at this point by far the 800-pound gorilla in the market, because we were big enough that we could afford to out-buy ads from any competitor.

One of the things I would do, I would pay up to 200% of what we would make on any ad buy that our competitor was on. This is, I guess what you do when you want to be a monopoly, when you want to be the winner. That was what I think fueled the growth until I sold the company in 2007, because I didn’t necessarily care about how much we spent. Of course, we’re making a lot of money.

When I sold the company, we had EBIDA around 90 million and I owned at that point 92% of the company, 8% went to a buddy of mine when we merged his cam company with our dating company. Cams and adult dating go together like chocolate and peanut butter. You have one where people are doing paid performance for cams.

Another one, they wanted to find dates and we now have it on our dating site that we have a cam business integrated with that. Our members can use cams and vice versa. When I sold it, we were phenomenally profitable.

Aaron Dinin:

Owning 92% of a company pulling in $90 million a year in profits. I know in the tech world, we’re usually talking about entrepreneurs who mostly just look rich on paper and it’s because they have what? 10 or 15% stake in a VC-backed Silicon Valley unicorn but that company is really operating at a loss. But wow, 92% ownership of a company churning out $90 million in profits.

Well, that’s something. What happened? Why would somebody making $90 million a year in profits sell his company instead of just keep running it?

Andrew Conru:

Basically the short answer to this is after running a company for 12 years and doing 70/80 hours a week for all the time, no vacations and that, and one of the problems I do as well is I tend to be a overachiever type, but more like the workaholics where you just plow through anything. Oh, we need some help pages written, okay, I’ll write that. You need marketing techs, I’ll do it. I always felt that no one else is going to be able to do it now I have to do it.

This is also because it’s hard to find staff that were world leaders in their field mostly because of the content. I got burnt out. When you get burned out, and this is before I realized I was clinically depressed and I wasn’t getting any joy out of working, and I didn’t know what to do at this point, and so I just got burnt out and decided to sell.

Aaron Dinin:

Who’d you sell it to and for how much? Because in this case, that’s a really important part of the story, right?

Andrew Conru:

I sold it in December 7th, 2007, which will always be a day of infamy for me, because that was the day I basically gave up and said, “I’m done. Somebody else can run this thing.”

Earlier that year, I’d been trying to sell the company but one of the hard things is, when you run a site that has adult content on there, the number of buyers go to almost zero, because for some strange reason, the markets think that if you have adult content on it, you’re somehow less legitimate of a company than if you don’t. It’s just the reality of the situation and one of the challenges we faced.

What it meant though, is that it was really hard to find mainstream hedge funds and buyers to take over the company. I hired someone to go out and try to help sell the company. They’d take like 1% or so commission rate on it. We only had a couple of buyers who were interested and they were giving lowball numbers on it. A couple of times EBIDA. I think Facebook went live for like 80 times, or it was just crazy amounts.

Basically the stock market trades at 16 to 20 EBIDA. We were getting offers at two or three. When I was approached by the people who bought out the name of Penthouse out of bankruptcy, they came and said, “Well, we can raise money and they’re going to give me 500 million for it.” I’m like, “Well, 500 million is not the multiple that I wanted.” But I wanted to get out because I was burned out, tired and I was just ready to run.

One of the problems of making money, especially the money that I made is that you have all this money, but you’re not getting any joy out of it because you’re so busy working on it and you can’t leave it alone. You can’t go off for two weeks on a vacation and just think the company’s going to run by itself when you have basically a bare bone staff. I agreed to do the deal, this $500 million number, but this was 2007 and the financial crisis was coming.

One of the precursors of the financial crisis was liquidity sort of drying up, which meant all the private equity guys couldn’t raise the money to give a cash buyout of a company. Over the course of a few months, the deal got worse and worse to a point where we got about two times EBIDA in cash and the rest were IOUs. Pouring salt on a wound, the headlines was all Penthouse buys Adult FriendFinder and FriendFinder and such.

It made it appear that Penthouse was some big company that was buying us out. They had maybe 1 or 2% of our revenue and were losing 2 or $3 million a year on it. Here we had revenue 250 or so million a year and pulling off 90 mil or so, here we are getting bought out. It is what it is.

Aaron Dinin:

You own the company again and even are running it now, according to what I’ve read at least. Yeah. What happened? What did those other owners do with FriendFinder and what got you back involved?

Andrew Conru:

I have to be careful of what I say here because I don’t want to get slander or libel and this type of thing. My impression was the new owners didn’t care about the company with the same love that I did because I never worked to make money for a company. Ever since I was a kid, I knew that the value of an entrepreneur is to give value to other people.

Because I was always a single guy, I always knew the value of relationships and love and friendship, I cared more about the product and creating a good service for our members than the actual revenue. I always look at the revenue as a big pile of cash that comes in behind you. If you don’t look at the revenue or how much money you’re making on, you can make a better product. The short of it, I believe that the new owners did not have that to heart.

They were private equity guys. They were going to try to go IPO and use the IPO money to pay off the IOUs that they gave me for the remainder of the 500 million. Long story short, they went public, I think in 2010, and it was the worst IPO of the year. It dropped 95 over the course of one year from the IPO price.

I have to be careful about why I believe this is the case, but I believe that the market didn’t believe that the management who purchased the company had the shareholders’ interests at heart. At least I could say that. Over the next, I think it was like six years, they ended up running the company into the ground and to a point where it couldn’t service its debt and it went bankrupt in 2013.

When you have IOUs, the company, when they can’t pay it back, you more or less get control of the company back. I got control of the company back in 2014.

However, I got control of the company back equity-wise, but I didn’t get control of the first-tier debt, which was controlled by a private equity firm that was you could consider them a vulture private equity firm where their goal is to go looking for distressed companies or companies that nobody else wants, in this case because they were adult, and then put terms of their debt that were onerous. In fact, the debt for 2014 until just this year was at 14% interest, 150 million or so of debt.

Aaron Dinin:

Whew, that is a big interest payment. What? You are responsible for that because you own the company again? How does that all work now?

Andrew Conru:

The company was paying out about 90 to 95 of its profit in the form of interest on the debt. The debt was structured in a way that the bankers never really want their debt paid off. They want the debt to be there forever and everything to be paid off on interest and so they basically attached themselves to the revenue stream of the company and basically take it out that way. Things changed earlier this year.

Frankly, I finally grew a pair and decided to come back and try to help the company out. Earlier this year I bought out the majority of the debt so that I could try to change the terms of the debt. I think now it’s like 7% instead of 14% so that I could help the company grow again. Because one of the problems when you get a large debt that’s extracting profits that’s only paying off interest, you can’t reinvest that into the growth of the company.

Over the last six or seven years, the company top line and bottom line had shrunk to about a third of what it was when I sold the company. Hopefully my involvement this year as an advisor, as well as founder of the company, I’m trying to help reboot the company over the next year or so, so that we can go back and compete directly with Match.com and others.

Aaron Dinin:

That’s right. Andrew Conru is back working on FriendFinder again, and yeah, the previous owners kind of tanked the business while leaning heavily into the adult dating space. That’s definitely hurt the company, but as of this recording, FriendFinder still has around 150 dedicated employees, millions of users and some decent profits that it can finally access thanks to Andrew buying out a huge chunk of the company’s debt.

What does that mean exactly for the future of FriendFinder, and more importantly, what does it mean for all of us listening to FriendFinder’s story? Well, I’ll let Andrew tell you what he thinks.

Andrew Conru:

One thing that Match.com has been doing over the last 10 years or so is basically consolidating and acquiring all the competitors in their space so that they could be homogeny and basically be a monopoly and have monopoly prices and such.

One of the reasons why I’m coming back is I think any company that’s been around for 20 years that has a monopoly on ideas that if they were patentable, the patents would’ve expired, I think it’s wrong for society to have these type of monopolies. There was a site called Plenty of Fish and Plenty of Fish was a thorn in Match’s side because they were basically giving away a huge dating site for free, and their site was great.

Quality of their site was on par with Match.com, but it was for free. They made most of their revenue from our affiliate program with Adult FriendFinder. If you were on their site and you want anything adult, they would put links to our site and that would be their primary revenue on it. That was one of the things that when Match bought them out, they bought out the last big competitor that’s free.

That’s scary because they make about $2 billion a year profit now on something that doesn’t really take that much effort to write. I think it’s a disservice for society to have monopolies taking billions.

Aaron Dinin:

Well, turns out whether you are a FriendFinder user or not, if you care at all about online dating, then you should probably care about what happens next with FriendFinder. At least you should, according to Andrew because the Match Group has bought up lots of its competitors and doesn’t really have, well, a company that can match it in the market. All right. I’ll go ahead and show myself out.

But do keep this in mind, it’s potentially bad news for anyone, whether they’re looking to find true love online or just trying to find a good time. I guess we’ll all have to stay tuned to see how the rest of the story plays out. In the meantime, I’d like to thank Andrew Conru for sharing the story of FriendFinder up to this point in its history.

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