It was the right bet on the wrong horse.
Six years ago, News Corp. made an ambitious gamble on the coming wave in technology, social networking, paying $580 million to buy MySpace.
They thought it was genius.
Now the media corporation is looking to unload by the end of the month what has become a digital albatross for a paltry $100 million (if they’re lucky), while rival Facebook is dancing its way to a $100 billion IPO.
Was News Corp. dumb or just unlucky? And how did MySpace — once bigger than Facebook — go so wrong?
Experts and former executives say that MySpace never had a chance, even back in 2005, when it had far more users than Facebook. (Photo of Rupert and Wendi Murdoch with MySpace founders Tom Anderson and Chris DeWolfe)
Facebook required members to use their identities, while MySpace allowed for aliases — and sexual predators.
Facebook innovated products, while MySpace stagnated.
Facebook had the right platform and the best engineers; MySpace did not.
And joining a big corporation like News Corp. didn’t help.
“At a time when social networks weren’t settled, Facebook siphoned off the elite,” said Owen Thomas, formerly of VentureBeat and founding editor of Daily Dot, told TheWrap. “If you were college educated, Facebook became your default choice. MySpace became the low class, low-rent section of town.”
“MySpace was no Facebook, but News Corp. probably didn't know the difference — the site was growing so fast when they bought it,” Robert Cringely, a technology writer and consultant, told TheWrap. “But it was growing with teenage users with limited buying power. By the time News Corp. noticed it was too late.”
A spokesman for News Corp. declined to comment for this story.
While Facebook was constantly adding new features and unrolling snazzy elements such as a news feed, MySpace failed to monitor its user base and crack down on spammers. Instead it allowed people to design their own profile pages and sign up with pseudonyms, which made the site appear chaotic.
Stories of sexual predators and overaggressive homepage ads took their toll, as privacy issues were not addressed. And it didn’t give users enough to do, whether through gaming or sharing posts.
Most fatally, it failed to exploit its greatest asset: its status as the go-to destination for music lovers, a place where bands such as R.E.M. shared their latest tracks with fans.
“Facebook is a technology company and MySpace was a media entity which confused itself with being a social network,” Om Malik, founder of Giga Omni Media, told TheWrap. “They had the audience and they could have launched the MTV for the next generation, but they didn’t understand what made them MySpace. They were too busy trying to pretend to be a social network to leverage their platform to build products to enhance the musical experience.”
Other issues were internal to the company. Facebook, many in Silicon Valley believe, hired superior engineers, and was built on a superior platform — making it impossible for MySpace to compete.
Under its new corporate parents, MySpace was forced to relocate from a trendy space in Santa Monica near the ocean to a quiet, leafy street in Beverly Hills, which instantly robbed the company of its start-up edge. In contrast, by maintaining its independence — and offering stock options — Facebook was able to hire the best engineers, critical to its continued growth and innovation.
“MySpace quickly alienated the technical crowd by becoming a cesspool of bad Flash animation. There were no design controls, no standardized user experience, no expectation that things would work the same way on every site,” Cringely told TheWrap.
Now, having hemorrhaged users by the millions, MySpace is a shell of a social network, barely hanging on to its global audience. The site's users have dropped steadily to roughly 77 million worldwide, far short of the nearly 700 million users Facebook currently boasts. (Though even Facebook has just seen its first decline in American users last month.)
When they bought MySpace, News Corp. leaders were sure they were investing ahead of the curve in the next great media movement: Social. And the idea was to use the platform to promote Fox's television and other media products.
"It looks like the best acquisition we've made in a long, long time," Chernin said in an interview with Fortune Magazine a year after the sale. "MySpace is the single biggest growth opportunity this company has."
Fast forward six years: News Corp. will likely sell a controlling interest in MySpace to a group of investors by the end of this month, according to an individual with knowledge of the negotiations. The company will retain a 20 to 25 percent stake.
Not that News Corp. didn’t try to overhaul the battered brand. Leadership of the company's digital division became a veritable game of musical chairs and in 2009.
Having lost its crown as the most popular social networking site, MySpace founders Chris DeWolfe and Tom Anderson stepped down from the helm in favor of former Facebook executive Owen Van Natta, now at Zynga.
Last November the company relaunched MySpace as a music and entertainment site. Yet, MySpace never became the vehicle for News Corp. content that Murdoch predicted.
“The new MySpace has been very well received by the market and we have some very encouraging metrics. But the plan to allow MySpace to reach its full potential may be best achieved under a new owner,” News Corp. COO Chase Carey said after a recent earnings announcement.
But the company was still reportedly losing as much as $100 million a quarter.
Even though News Corp. ambitions for MySpace did not pan out, analysts who follow the company said that the purchase was not an unmitigated disaster, primarily because a $900 million advertising deal with Google more than covered the purchase price. “You pay management to take risks like this. It was in the right area at the right time. Maybe [Murdoch] didn’t back the right horse, but this is not something that should discourage a media company from forward thinking in the future,” James Dix, a senior media analyst at Wedbush Morgan Securities, told TheWrap.
Yet the fabulous rise and flameout of MySpace should serve as a cautionary tale.
“What killed MySpace is that people stopped going there because it stopped being useful and interesting. When something becomes boring and terrible, it’s not around for very long,” Malik said.