The optimization process and recommendations:

1. Avoid Subqueries (query line: 8): We advise against using subqueries as they are not optimized well by the optimizer. Therefore, it's recommended to join a newly created temporary table that holds the data, which also includes the relevant search index.
2. Create Optimal Indexes (modified query below): The recommended indexes are an integral part of this optimization effort and should be created before testing the execution duration of the optimized query.
3. Prefer IN Clause Over OR Conditions (modified query below): Using an IN clause is far more efficient than OR conditions, when comparing a column to more than one optional values. When using an IN clause, the database sorts the list of values and uses a quick binary search.

Optimal indexes for this query:

ALTER TABLE `all_friends` ADD INDEX `all_friends_idx_friend_id` (`friend_id`);
ALTER TABLE `all_friends` ADD INDEX `all_friends_idx_friend_type` (`friend_type`);

The optimized query:

SELECT
        DISTINCT all_friends.friend_id,
        all_friends.hobbies AS friend_hobby 
    FROM
        all_friends 
    WHERE
        all_friends.friend_id NOT IN (
            SELECT
                DISTINCT (all_friends.friend_id) 
            FROM
                all_friends 
            WHERE
                (
                    all_friends.friend_type IN (
                        'Good', 'Great'
                    )
                )
        )