The sale of MySpace on Wednesday illustrates the pressing business problem for dynamic digital companies: How do you make the value last?
From a peak valuation of $12 billion in 2007 to a garage sale price of $35 million on Wednesday, MySpace serves as a stunning example of the difficulty new media companies have sustaining their worth over time.
“When comes to new media what makes it difficult is things are changing so fast,” Richard Rosenblatt, the former chairman of MySpace, told TheWrap on Wednesday.
“Every single decision you make has broad reaching ramifications, and you need to be ready to rethink your decisions every day. For a lot of managers that’s tough, to continually have to reinvent yourself,” he added.
Rosenblatt knows that all too well, since his own start-up, Demand Media, an online publisher and content farm, was until this year one of the hottest digital content companies, with a price tag of between $2 billion and $3 billion.
Demand is only six years old, and has been on an enviable growth curve. But last year Google changed the way it ranked news from so-called “content farms,” and Demand is not so in demand at the moment.
It’s a constant problem. Hulu, growing at exponential rates since its founding four years ago, now finds itself on the sales block.
The company had been expected to reach $500 million in revenue this year, and its value remains to be determined for purchase. But without the support of its current owners — News Corp., Comcast and Disney — how reliable are Hulu’s revenues going forward? Yes, there are multi-year content deals in place, but when those expire, the landscape might be radically different.
Then there’s Facebook, with its $70 billion IPO on the horizon. Last month the first signs emerged that the company has topped out its audience in America, with the site losing users domestically for the first time in its short history.
A year ago Facebook looked unstoppable. Today, anxiety is on the rise that the company has reached maturity and will need to find a new strategy to keep its current users engaged.
“In one sense MySpace is a victim of not excuting well, but look at even hot social netowrking services such as Facebook and it's not difficult to imagine the pattern repeating itself,” Clive Thompson, a writer for Wired, told TheWrap. “If this pattern holds, someone will come up with something that those guys can’t predict and they are not able to buy it, own it or change their model. What that's going to be I have no idea.”
This seems to be the template of our times for new media companies: they burn very hot, very fast and then many of them burn out.
“Nowadways the cycle of boom and bust is much shorter than it used to be,” said Sree Sreenivasan, professor of digital journalism at Columbia’s Journalism School. “We saw this with the day people woke up and saw Groupon turning down $6 billion from Google. Most people were like ‘What’s a Groupon?’ They had never heard of it.”
Here’s another example: Flip, once the hottest handheld video company on the planet, was bought by Cisco in 2009 for $590 million, and shut down two months ago. Its technology was made obsolete within two years — by smart phones.
The speed of change in the technology sector is the blessing and curse: the low barrier to entry and the accelerated pace of growth can create overnight tech sensations, but it also allows competitors to quickly overtake them.
Amazon and Google may be two exceptions, say a number of experts. Amazon took an extraordinarily long decade-plus to arrive at profitability and wide public acceptance. In large part the tenacity of founder Jeff Bezos’s vision drove the company through shoals that might have wrecked a lesser force.
But Amazon is an e-commerce company based on a core culture of ease of use and customer service; it does not depend on a technology like MySpace or Friendster.
“Amazon is probably the closest to IBM in terms of staying power," Thompson said. "That's easier to explain, because their business was always about fulfillment. It was about how to ship stuff better than anybody else and they got really, really good at doing that.
Google is another company that some analysts believe has established enough of a foundation to become a long-term part of American commerce.
“Google maintains its hip factor because they have the money and the ability to acquire the next generation of assets and companies and integrate them in their own overall culture,” said Mike Hickey, an analyst at Janco Partners.
The numbers for these incredibly young companies dwarf the imagination.
It’s easy to forget that MySpace — founded in about 2003 — once led Facebook in growth and users, and was the top social networking site in the world.
In 2007 and 2008, shortly after News Corp. bought the site for $580 million, MySpace consistently beat Facebook in traffic.
But in April of 2008 Facebook snuck up from behind, lapped MySpace and has never looked back. Since then, MySpace has been in a losing battle to define its identity, innovate and settle on a successful audience strategy.
Said Sreenivansan: “You see the ability of companies to get enormous traction in a short period of time, but getting that traction without innovating, without constantly trying new things, engaging their users and then disappearing.
“You must listen to your community of users. People get bored very easily, so offering them new and interesting way to engage content, being very clear about what you stand for is all important. That can help them avoid the cycle.”
Brent Lang and Lucas Shaw contributed to this report.