Murdoch's Myspace humiliation
Myspace could have been Facebook but it failed spectacularly under News Corp, amplifying the question of whether the giant 'gets' 21st century media.
In 2005, when Rupert Murdoch out-bid a clutch of desperate rivals and paid $US580 million for the leading social networking site of the time, Myspace, it was hailed as a demonstration of his boldness and vision and an emphatic entry by News Corp to the Internet Age.
Within twelve months, after signing a $US900 million three-year deal with Google, he looked like a genius. And in 2007, when he was looking to sell Myspace to Yahoo, numbers as big as $US12 billion were being bandied around.
This week News did sell Myspace, for a paltry $US35 million, and put an end to the haemorrhaging that business was experiencing and the embarrassment the continuing presence of the business within the News portfolio had created for Murdoch.
What appeared visionary in 2005 had become humiliating by 2008, when Facebook over-took Myspace as the biggest of the social networks. Today, despite the explosion in social networking activity, Myspace has less than half the unique visitors each month that it did when News acquired it.
The extent of Myspace's decline can be measured in the sale price, which was actually more than many analysts thought News would generate. That $US35 million contrasts with valuations of Facebook, admittedly in an over-blown market for anything digital, of around $US70 billion.
Myspace could have been Facebook. News bought it before Facebook, which was until then operating as a closed network for university students, and opened its site to all-comers. In social networking, there is a big advantage for first movers because of the self-fuelling nature of the network benefits.
There are numerous reasons put forward as to why Myspace failed so spectacularly – apart from the $US545 million loss on its purchase price it generated hundreds of millions of dollars of operating losses.
Poor execution, an overly complex product – Facebook and Twitter are deliberately and deceptively simple and stripped back sites – an unwillingness to allow third parties to develop apps, tardiness in responding to changes in its market, issues with security and controversies about the nature of some of the content it was hosting were presumably factors.
The larger one, however, may have been its acquisition by News and the change in emphasis that accompanied the change of ownership.
The really successful internet businesses that are built by leveraging network benefits – like Google, Facebook and Twitter – are far more focused on generating user volumes than they are on today's revenues. They build their audience first and then think of ways to monetise it.
Once Myspace was part of News, the focus was on lifting advertising revenues as quickly as possible. The 2006 deal with Google, which Murdoch boasted was a validation of the purchase – and, to be fair, he wasn't the only one who used that deal to infer multi-billion-dollar valuations – turned out to be one of the more destructive developments in Myspace's history.
Google signed up for $900 million of payments over three years for search and contextual ads on the site, with Myspace providing commitments in relation to the traffic. With the already-messy and complicated site over-loaded with advertising, the audience then imploded.
More broadly, the culture of a hard-nosed, revenue-focused bureaucracy of a global corporate like News couldn't be more alien to the free-wheeling entrepreneurial dreamers who inhabit the spaces Myspace was trying to occupy during the land grab phase of network growth that eventually leads to a dominant provider emerging.
Myspace ceased to be cool because News as an organisation doesn't appear to have understood what it meant to be cool in the spaces Myspace occupied. It obviously understands 20th century media but the Myspace saga amplifies the question of whether it 'gets' 21st century media. It wouldn't be alone if it didn't.
That's an important, perhaps critical, question as News and its peers try to manage the transition of their traditional media businesses into the digital age. News' big experiments with digital media – Myspace, the iPad-only newspaper The Daily, and the paywalls around its UK newspapers – haven't inspired confidence in News' ability to manage that evolution.
Within twelve months, after signing a $US900 million three-year deal with Google, he looked like a genius. And in 2007, when he was looking to sell Myspace to Yahoo, numbers as big as $US12 billion were being bandied around.
This week News did sell Myspace, for a paltry $US35 million, and put an end to the haemorrhaging that business was experiencing and the embarrassment the continuing presence of the business within the News portfolio had created for Murdoch.
What appeared visionary in 2005 had become humiliating by 2008, when Facebook over-took Myspace as the biggest of the social networks. Today, despite the explosion in social networking activity, Myspace has less than half the unique visitors each month that it did when News acquired it.
The extent of Myspace's decline can be measured in the sale price, which was actually more than many analysts thought News would generate. That $US35 million contrasts with valuations of Facebook, admittedly in an over-blown market for anything digital, of around $US70 billion.
Myspace could have been Facebook. News bought it before Facebook, which was until then operating as a closed network for university students, and opened its site to all-comers. In social networking, there is a big advantage for first movers because of the self-fuelling nature of the network benefits.
There are numerous reasons put forward as to why Myspace failed so spectacularly – apart from the $US545 million loss on its purchase price it generated hundreds of millions of dollars of operating losses.
Poor execution, an overly complex product – Facebook and Twitter are deliberately and deceptively simple and stripped back sites – an unwillingness to allow third parties to develop apps, tardiness in responding to changes in its market, issues with security and controversies about the nature of some of the content it was hosting were presumably factors.
The larger one, however, may have been its acquisition by News and the change in emphasis that accompanied the change of ownership.
The really successful internet businesses that are built by leveraging network benefits – like Google, Facebook and Twitter – are far more focused on generating user volumes than they are on today's revenues. They build their audience first and then think of ways to monetise it.
Once Myspace was part of News, the focus was on lifting advertising revenues as quickly as possible. The 2006 deal with Google, which Murdoch boasted was a validation of the purchase – and, to be fair, he wasn't the only one who used that deal to infer multi-billion-dollar valuations – turned out to be one of the more destructive developments in Myspace's history.
Google signed up for $900 million of payments over three years for search and contextual ads on the site, with Myspace providing commitments in relation to the traffic. With the already-messy and complicated site over-loaded with advertising, the audience then imploded.
More broadly, the culture of a hard-nosed, revenue-focused bureaucracy of a global corporate like News couldn't be more alien to the free-wheeling entrepreneurial dreamers who inhabit the spaces Myspace was trying to occupy during the land grab phase of network growth that eventually leads to a dominant provider emerging.
Myspace ceased to be cool because News as an organisation doesn't appear to have understood what it meant to be cool in the spaces Myspace occupied. It obviously understands 20th century media but the Myspace saga amplifies the question of whether it 'gets' 21st century media. It wouldn't be alone if it didn't.
That's an important, perhaps critical, question as News and its peers try to manage the transition of their traditional media businesses into the digital age. News' big experiments with digital media – Myspace, the iPad-only newspaper The Daily, and the paywalls around its UK newspapers – haven't inspired confidence in News' ability to manage that evolution.
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