MySpace could lift ban on commerce

Members can't peddle their wares on the social networking site. But that could change if it can profit from sales.

Christine "Forbidden" Dolce
By Joseph Menn
Los Angeles Times Staff Writer

August 27, 2007

Christine "Forbidden" Dolce, Tila Tequila and Bobbi Billard each have accumulated more than a million admirers on MySpace.com, making them among the handful of most popular people on the world's most popular social networking website.

That may have something to do with the amount of skin they show on their MySpace pages. More obscured than their bawdy photo galleries, however, are their attempts to cash in on their online fame by using MySpace as a storefront to sell perfume, poker and soft-core porn.

The cyber pin-ups can't come right out and peddle their wares because MySpace officially bans most commerce. But any suitor would have little trouble finding online pathways to the three hotties by following "hints" they drop on their MySpace pages.

And these detours are the subject of intense debate at MySpace, Rupert Murdoch's prized Internet property.

MySpace bans commerce between its members because it doesn't want to jeopardize the corporate advertising that accounts for the vast majority of its profit. Allowing its members to promote their wares would only clutter up the place.

"We don't want users' pages to start looking like NASCAR," MySpace Chief Executive Chris DeWolfe said.

But behind the scenes, the issue is being hotly discussed as DeWolfe and his team of top executives at the biggest property within News Corp.'s Beverly Hills-based Fox Interactive Media grapple with the imperative of squeezing more money out of MySpace. MySpace doesn't want to encourage the likes of Dolce, Billard and Tequila. But its ban on commerce is difficult to enforce. If the policing efforts fail, shouldn't it at least try to make money from the online sales it makes possible for others by taking some sort of a cut?

Murdoch, the News Corp. chairman who paid $580 million for MySpace's parent company in 2005, said this month that he wanted to drive up Fox Interactive profit by a factor of 20. Fox Interactive brought in $10 million in profit on sales of $550 million in the fiscal year ended June 30, but Murdoch said Aug. 8 that he would be surprised if that didn't jump to at least $200 million on sales of $1 billion in the year just begun.

While Murdoch is applying pressure from above, Facebook.com is rising up from below. Since the rival networking site dropped restrictions preventing anyone other than students from becoming a member, its registered-user rolls have soared far faster than those of MySpace. Facebook has fewer restrictions on advertising and person-to-person sales, forcing MySpace to reexamine its own practices.But MySpace can't afford a permissive policy for commerce if it comes at the expense of corporate advertising, its lifeblood.

"We would be foolish not to focus the majority of our time, from a revenue standpoint, on optimizing our ad products," DeWolfe said, pointing out that as the "highest-trafficked site on the net" in terms of page views, MySpace is well positioned to tap into an online advertising market that is projected to soar to $40 billion in 2011.

On the ad front, MySpace is making great strides.

The company has focused on serving up better videos and interactive features to keep visitors on the site longer, giving them more opportunities to look at ads. MySpace does custom ad campaigns that include creating tricked-out brand profiles and contests, with price tags that can run into the millions of dollars. A recent profile page and ads for the movie "Superbad" spurred 1.5 million viewings of the trailer, executives said.

Tila Tequila

Meanwhile, a software team has been charged with targeting ads to MySpace users based on registration data such as their age and location as well as what they list as favorite pastimes on their users' pages. Facebook is quietly working on something similar but has a ways to go.

MySpace already has begun inviting a few of its advertisers to target 10 groups of users, said Michael Barrett, chief revenue officer for Fox Interactive. In an internal test that tried to reach users interested in fashion, such targeting increased the response rate by 85%, Barrett said.

Targeting is crucial because although MySpace enjoys more pages viewed per month than any other site in the world, it hasn't been able to charge much for ads. Marketers are wary of landing next to a random 15-year-old's idea of gross humor.

As a result, MySpace collects less than half as much revenue per visitor as AOL or Yahoo, Sanford C. Bernstein analyst Michael Nathanson said.

MySpace prohibits users from sending commercial messages, advertising products and posting the address of outside websites. It bans "any commercial endeavors" not endorsed by the company. The trouble is, many MySpace users have figured out how to get around the rules, leaving the small staff too overwhelmed to enforce the restrictions with much rigor.

Instead of listing the Web address of her nudie site on her MySpace profile page, for instance, Billard urges her visitors to look it up by adding "a .com to the end of my name. Hint hint!"

Dolce knew she couldn't hawk a cologne called Pherlure, so she got it renamed Forbidden Pherlure to pass it off as a personal project in an attempt to skirt the rules, her former business partner said. MySpace generally lets users tout their involvement in businesses such as rock bands, stand-up routines and movies.

"The way they enforce the terms of service is completely inconsistent, and it always has been," Dolce's ex-partner Keith Ruby said. "They're really sticky on allowing you to make money off your profile."

Tequila likewise promotes TilaPoker.com. But when she asked her online friends to sell her music, the request quickly vanished from her pages; it was too blatant, and it conflicted with MySpace's means of earning money from the sale of songs via Apple Inc.'s iTunes and Snocap Inc.. Dolce and Billard didn't respond to requests for an interview. A spokeswoman for Tequila said she wasn't available.

By officially barring most commerce, MySpace is leaving a lot of money on the table. The company talked to Google Inc. and EBay Inc. about teaming up to organize user-to-user sales, but nothing has emerged.

Executives hint that something big is in the offing. DeWolfe said peer-to-peer transactions have to be "fun, safe and secure." Selling only to your friends, for instance, might be both fun and safer than bidding on EBay, MySpace employees said. One person said MySpace could be on the verge of a sweeping deal to give it tools to better monetize and monitor the commerce activities of its members.

The greatest confusion over advertising centers on its policy governing outside companies that distribute small bits of software on the site. Those small programs, known in the industry as widgets, can be posted to personal pages on social networks, providing such things as sports scores and video clips.

Bobbi Billiard

Both MySpace and Facebook have allowed thousands of types of widgets to spread on their pages, keeping users happier and occupied longer than they would be if they had to leave the site for those services. But since May, Facebook has allowed the outside companies to do more, including sell advertising within the network's pages. As a result, "we have seen the formation of an entire ecosystem," said Dave Morin, senior platform manager at Facebook.

At MySpace, widget-makers must try to lure users outside of the network if they want to show ads or try to sell the users a fancier version of their services. MySpace has bought some widget makers and struck alliances with others, fueling suspicion that the company plays favorites when enforcing the rules, a charge DeWolfe denies.

"It is certainly an inherent conflict," said Max Levchin, CEO of top widget company Slide.com, a slide-show maker popular among users of MySpace and Facebook.

Because of such confusion, "developers of widgets and applications are starting to shift resources away from MySpace to Facebook," and viewers will eventually follow if things don't turn around, said Lightspeed Venture Partners investor Jeremy Liew, who has backed slide-show and movie-review widget makers RockYou and Flixster, both of which are used on MySpace and Facebook.

DeWolfe said that the policy governing widgets would be clearer by the end of the year. Possibilities include allowing some widget makers to sell ads within the mini-programs and take a cut, as well as letting the outside companies sell ads on their own profile pages.

Liew said MySpace still had time to get it right. "It's still a mass destination and a home page for people," Liew said. "The power is still there."