Bigger than Google, MySpace is Different

Mike Masnick over at Techdirt posted an interesting observation about Rupert Murdoch’s MySpace earlier today3. And I’m glad he did because, coincidently, I was in the process of writing a piece on a related topic. While Mike questions the validity of MySpace’s popularity (in terms of pageviews), versus the revenues they are able to generate, my post will focus on the challenge that they face on the revenue side, regardless of pageviews and ad inventory.

Like all community sites that rely mostly on their users to author content, MySpace has had a very difficult time trying to secure high advertising rates. Historically, advertisers have held little trust in content that is not tightly controlled editorially and, therefore, the value they are willing to attach for ads placed next to such uncontrollable content has been very low. The result is clear… MySpace ranks higher than Google in terms of pageviews, but Google will gross $6 billion in revenues this year, while MySpace will generate about $30 million. The delta, which can be measured in orders of magnitude, is almost unbelievable. I realize the comparison is not directly apples to apples, but even so!

I bring this up because this is where Murdoch’s strategic opportunity lies… in eliminating that gap. Put another way, MySpace has a multi-billion dollar opportunity to exploit, which promises to break News Corp out of the media stock depression that it and all its fellow conglomerates have been suffering. Success on this front will demonstrate that News Corp can tap into the fastest growing segment of the advertising industry in a manner that befits Google and Yahoo!

But why would advertisers change their tune and all of a sudden attach higher value to community sites and user-authored content? One word… blogs. Blogs are proving themselves to be a powerful new medium, one that challenges traditional media for people’s time and attention. When an advertiser buys ads on Google and it gets distributed on the AdSense network, many of them are placed on blogs, without discrimination as to who authored the content. This dynamic is something new… advertisers gave up some control (where the ad is placed) in return for higher accountability. Put simply, Google changed the game, and now News Corp’s MySpace (and all other community services) can benefit.

I bring this up for another reason… with the recent news that MySpace is launching its own record label4 as well as the rumors that they will also start a film studio, I hope the MySpace guys aren’t getting too caught up in the bright Hollywood lights. As many know, in Hollywood, you’re either a somebody, a nobody, or you’re one of the King’s (Murdoch’s) men. It’s very easy to get blinded (e.g. worrying about a regular table at The Ivy or the studio lot commissary) and to lose focus on the fundamentals and strategic priorities. Wall Street is watching 5, and it is my belief that News Corp’s second entry into the Internet will be judged first and foremost on their ability to close the monetization gap between MySpace and Google, and less on their ability to venture into traditional Hollywood businesses.

Don’t get me wrong, I’m not saying that launching a label and studio is a bad thing, it’s just that such ventures won’t get the Internet multiples that the media giants are looking for.

(originally posted at http://gigaom.com/2005/11/03/my-space-part-deux/)

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