Monday, December 07, 2009

The Eclipse Of MySpace

I was hoping this article would shed some light on Rupert Murdoch's faltering business sense, but I don't think it does that. Instead, it's a tale of the demise of entrepreneurial vision when a brilliant (but small) business has to become just another dependable cog in a business empire. We all love the romance of entrepreneurial risk in a capitalist economy - risk is edgy and cool - but Big Business hates risk with a passion:
In summer 2005, having spent the best part of four decades ­building a newspaper, film and television empire, Rupert Murdoch decided that the time had come to get serious about the internet.

...The way in, it was decided after much deliberation among the News Corp top brass, was to buy Intermix, a Los Angeles-based company whose main asset was MySpace, a website that had been adding an astonishing 70,000 new users every day.

...To say MySpace was a hot property back in 2005 is something of an understatement. ... Millions of teenagers across the world adored MySpace, spending hours every day connecting with each other online and fine-tuning ­personal profile pages that reflected their tastes and personalities. News Corp had new-found cultural cachet thanks to them – and to the popularity of MySpace with new filmmakers and musicians such as the Arctic Monkeys and Lily Allen, who became sensations on the site, releasing songs to fans before their first albums appeared.

...But by the beginning of 2008, things began to sour. Facebook, a rival social network that was simpler and easier to use, was gaining momentum and starting to grow more quickly than MySpace. Murdoch confidently told the world that MySpace would make $1bn in advertising revenues in 2008 – but the company missed its target. Users began to desert the site, which had become cluttered with unappealing ads for teeth straightening and weight-loss products. News Corp executives could hardly hide their displeasure, and in April this year, DeWolfe left, closely followed by most of his senior management team.

Since then, MySpace has shed 40 per cent of its staff, closed many of its international offices and publicly given up trying to match Facebook in the race to become the world’s biggest social network. (MySpace has more than 100 million regular users, Facebook more than 300 million.) A move by MySpace and other News Corp digital businesses into the biggest new office development in Los Angeles was scrapped – after the $350m, 12-year lease had been signed – leaving the company paying more than $1m a month for an empty building. The number of people using the site has also dropped precipitously this year: MySpace’s share of the social networking market has tumbled from 66 per cent a year ago to 30 per cent, according to the online research company Hitwise. The situation is so dire that MySpace recently revealed that it had failed to attract enough online traffic to meet targets set in its advertising deal with Google and as a result would lose $100m this year. An acquisition that had initially covered Murdoch in glory and offered so much promise was becoming an embarrassment to the News Corp chairman and a liability for his company.

...As long as MySpace was growing exponentially, Murdoch and Chernin seemed happy to let Anderson and DeWolfe run it how they pleased. The MySpace team and Levinsohn continued to clash, and Levinsohn left News Corp to be replaced by his cousin, Peter, a veteran of Fox’s TV business. MySpace continued to add users at a terrific rate and was also attracting huge volumes of advertising from movie studios and consumer brands. That meant two things: one, the young team would have to learn to balance users’ and advertisers’ needs, and two, the top brass would have trouble resisting the temptation to get involved.

Murdoch himself was responsible for dealing the company the first in a series of blows. On a 2007 News Corp earnings call, a punchy Murdoch told analysts that Fox Interactive Media would generate $1bn in revenues for the 2008 fiscal year (up from about $550m in 2007). With MySpace representing almost all of Fox Interactive’s revenues, the implication was clear: Murdoch thought MySpace’s meteoric rise would continue. There was only one problem: the MySpace management team had no idea Murdoch had set them a new target until he opened his mouth. “It came out of thin air,” says a former MySpace executive. At a stroke, the site’s free-wheeling, entrepreneurial days were over: it had to perform exactly as expected – or else.

...The company also prided itself on being able to respond quickly to the needs and demands of its community, but once Murdoch had set the $1bn revenue target, putting the MySpace community first became more ­difficult. According to former MySpace executives, the advertising on the site was making it less compelling for users. Meanwhile, any innovations or changes that might have cut the number of page views – and therefore advertising revenues – were likely to fall foul of News Corp.

...The two sides differ profoundly over where responsibility lies for the site’s decline. Former MySpace executives say News Corp dragged its feet over implementing Ajax, a program that allows users to send a message, an e-mail or to post a comment on their friends’ pages without having to open a new browser window. Facebook was quick to embrace Ajax but MySpace did not follow suit, partly because to do so would have reduced the number of page views the site generated and therefore its advertising revenue. “It would take five steps to post a comment or send a message, so five different pages would open,” explains another former executive. “There would be ads on each of those pages, so we were making money. We went to News Corp and said: ‘We want to change this but in the short term our revenues will drop.’ It became a long back and forth. [They] were pushing back – they wanted to make sure we weren’t going to drop our revenue numbers.”

News Corp, meanwhile, contends that the request to adopt Ajax came at the beginning of 2009 – when Facebook had already established its supremacy. In other words, it was too little, too late.

...One of the other tools that made Facebook so effective was an e-mail address importer that immediately sent invitations to the user’s friends to sign up to the site. Another ex-MySpace executive says Anderson waited too long to introduce a similar function on MySpace.

...None of this was a problem while Murdoch remained deeply interested in progress at MySpace. But in 2007, two years after buying it, the man who was DeWolfe’s biggest ally became distracted by a new deal that required much of his time and attention: News Corp’s pursuit and eventual $5bn purchase of Dow Jones, the company that owns The Wall Street Journal.

“The bureaucracy crept back in when he bought the Journal [and] Murdoch became less interested in MySpace,” says a former MySpace executive. “Then the recession hit and every finance guy at News Corp became involved in what we did so we had to spend all our time doing PowerPoint demonstrations.”

Another former executive puts it more bluntly. “Rupert took his eye off the ball on the internet. He got obsessed with Dow Jones and stopped ­paying attention to MySpace. That’s when all the trouble really started.”

...But is it too late to reverse what looks like inexorable decline? “It’s an amazing company and an amazing asset,” argues Van Natta. He has spent the past six months streamlining the site, reducing the number of products in development and focusing on music and film. The company has also removed certain web pages that Van Natta thought were hindering the user experience. But the axed material generated all-important page views, which generate ad revenue. The result of the “self-inflicted” pain, as one executive puts it, will lead to an even more painful loss of revenue.

Van Natta and Miller, who decline to comment, are convinced MySpace must be a leaner, more appealing site that draws in users and encourages them to linger. Van Natta says the company is no longer interested in competing with Facebook – “we’re very focused on a different space” – and claims MySpace will be “the place where content gets socialised”. “If you and I had never met before but had similar tastes in music I can connect with you on MySpace and discover that you like movies and TV shows that I hadn’t discovered yet,” he says. “MySpace can foster discovery [of music, films and TV] in a way that others can’t.”

There were encouraging signs recently that the site continues to strike a chord with young users. The premiere of New Moon, the sequel to ­Twilight, was streamed live on MySpace and attracted close to three ­million viewers – far more than watched a Shakira music video that ­premiered on Facebook around the same time.

...The boss has plenty of other worries to distract him, after all: a soft advertising market and the future of his beloved newspaper industry are just two. If MySpace is to recover and prosper, it also needs to deepen its engagement with young internet users. No one, however, matters more than a certain 78-year-old.

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