BEVERLY HILLS — MySpace popularized online social networks and has a membership the size of the population of Mexico. It commands a gluttonous chunk of advertising, has a multibillion-dollar parent in News Corp. and boasts dynamic leadership in co-founders Chris DeWolfe and Tom Anderson.
Yet MySpace (NWS) will have the mind-set of a start-up the next several months, with an audacious menu of business partnerships, technology initiatives and expansion plans to gain the attention of consumers and advertisers.
It has little choice. Though the most popular social network, MySpace is in an escalating battle with upstart Facebook. As major retailers such as Coca-Cola (KO) and Blockbuster.(BBI) pump up advertising on social networks to reach millions of Americans creating personal Web pages, MySpace is trying to be heard above the din of Facebook — a rival less than half its size. MySpace co-founders DeWolfeand Anderson have a few tricks up their virtual sleeves as they try to reassert their company — often stereotyped as a site for kids — as a preeminent power.
The goal is to make MySpace the starting point for people on the Internet, where they can check in on the activities of friends, peruse e-mail, get the latest on news and weather, and post their favorite photos and videos. "We're offering one place where people are in control," DeWolfe coolly explains at an L.A. restaurant near MySpace's offices, cradling a cocktail.
MySpace is competing with Facebook not only for advertising market share but for mindshare: Facebook is benefitting from the type of buzz in Silicon Valley that MySpace received a few years ago.
"There is a class divide between the two," says tech blogger Robert Scoble. "MySpace is Hollywood. Facebook is Silicon Valley. The tech influencers go to Facebook, but the mainstream crowd is MySpace."
While some may scoff at such stereotypical comparisons, Facebook's growing popularity is a concern for MySpace, financial analysts say.
"Is Facebook to MySpace as Google was to Yahoo?" posits Spencer Wang, a financial analyst at Bear Stearns, alluding to the upstart search-engine service that upended an older competitor. Since Facebook made its network available to anyone in September 2006, its user base has grown sixfold, to 59 million. Wang expects that to reach 100 million by mid-2008.
"The Facebook factor is a huge concern," Wang says. "It could lead to a potential cannibalization of MySpace's user base, less time spent by users on MySpace, and increased investments by MySpace to fend off Facebook."
Facebook, which had no comment for this story, has a higher percentage of college-educated users, considered attractive to marketers. MySpace users are more likely to click on ads because they are less private than Facebook users, Scoble and financial analysts say.
At the Web 2.0 conference in San Francisco in October, News Corp. Chairman Rupert Murdoch acknowledged that MySpace may not reach its previous revenue forecast of $800 million for its 2008 fiscal year, ending in June.
Power to the people
Some may dismiss MySpace, with its unruly layouts and neon-glow graphics. But the masses — it has 110 million members — love it.
"MySpace is not a wild child," DeWolfe says, pointing out that 40% of the site's members are over 35 years old. "It is a company for everyday people who wish to express themselves in music and videos. Facebook is a utility."
No less an authority on mainstream tastes than News Corp. noticed that when it swooped in and plunked down $650 million to acquire MySpace in 2005.
Despite some initial skepticism at the time of the deal, it is now considered a "home run" by analyst Wang and others. Since the purchase, MySpace's monthly unique visitors have increased more than fivefold, and its daily page views have soared to 1.5 billion. Oh, and that $650 million acquisition? MySpace is estimated to now be worth $2.4 billion — nearly four times News Corp.'s initial investment.
What's more, MySpace's revenue has improved 10 times since the acquisition.
A big slice of that is ad revenue. This year, MySpace is expected to sell $525 million worth of advertising, about 58% of the social-networking industry's total, says researcher eMarketer. Facebook, by contrast, is expected to ring up a profit of about $30 million on revenue of $140 million this year, says Bear Stearns analyst Robert Peck.
Webisodes of original productions such as The Fit and Quarterlife, condensed versions of old TV shows such as Fantasy Island, viral videos and presidential candidate forums run on MySpaceTV, the company's video channel.
About half of MySpace's 800 employees work in a tony office with a panoramic rooftop view of the Hollywood Hills, Rodeo Drive and palm trees. A game room is anchored by two Guitar Hero stations and basketball hoops. Walls are festooned with commemorative posters of famous MySpace users such as music groups Franz Ferdinand and Jet.
Indeed, MySpace has burnished its enormous following through its show-biz connections. There are 6 million bands registered on the site.
Before MySpace, many bands sent demo tapes to radio stations and music writers to get the word out. Now, they can download songs to their MySpace page. "It changed everything for us," says Joel Madden, lead singer of Good Charlotte. The band has tested new material on its page for feedback and posts messages for fans. It's even scouted other MySpace pages to find opening acts.
Jesse Carmichael, keyboardist for Maroon 5, says the five-member group started a MySpace page to communicate more directly with fans. It now has more than 300,000 friends.
Music is just a fragment of MySpace's vast constituency, however.
As MySpace turns 4 years old in January, it has grand plans to extend its reach.
Next year, it plans to offer members the option of creating multiple profiles tailored to friends, family and business associates. A channel with Oberon Media, a maker of multiplayer games, is in the works for the first half of 2008. MySpace unveiled a service that lets MySpace members make free Internet phone calls through Skype (EBAY). And it just unfurled Transmissions, a program that lets musicians showcase music on their pages and sell performance videos.
The Southern California company has taken steps to raise its profile and show off its high-tech chops. This month, it opened an office in San Francisco with about 50 people. It plans to expand to about 200 by mid-2009. DeWolfe vows to raise his profile in Silicon Valley, as he did at the recent Web 2.0 conference in San Francisco.
Wait. There's more. Next on the expansion agenda: offices in Russia, Brazil, Turkey, South Korea and Poland in 2008.
Meanwhile, MySpace's membership in OpenSocial — a Google-led consortium of about 75 social-networking sites that includes MySpace, LinkedIn and Friendster — should also buttress relations with makers of mini-software programs called widgets, some of whom feel MySpace has not been as supportive as Facebook, says David Gentzel, creator of Trakzor, an application used by 4 million MySpace users to track when their friends view their profiles.
The Facebook factor
What makes the horse race between MySpace and Facebook so interesting is the fluid nature of the market and its always-dynamic roster of players. Since 2003, there have been no less than three go-to networking sites: the since-faded Friendster, MySpace and — now — Facebook.
"Who knows? There could be a new hot company five years from now," says Konstantin Guericke, CEO of social-networking site Jaxtr and co-founder of business network LinkedIn.
Complicating matters, multiple sites can co-exist. Social-networking denizens have shown a predilection to use major sites in distinctly different ways.
Consider MySpace, Facebook and competitor LinkedIn: MySpace is treated as an uninhibited, open hangout for the young and creative at heart; Facebook is a more discreet destination for selected friends to schmooze and network; LinkedIn is for business dealings.
"I use all three for different reasons, but from a musical standpoint, MySpace has a hip music disposition," says rap legend MC Hammer. "Facebook is great, but it's for a more mature crowd."
Yet Facebook's mature — some might argue elitist — crowd is a highly influential one. "Facebook has won the hearts and minds of the techies," says Jennifer Simpson, an analyst at Yankee Group.
That became painfully clear to MySpace last month when — despite a new advertising plan and the new OpenSocial partnership with Google — it was lost in the vapor trails of Facebook, which also announced a new ad plan as well as an investment by Microsoft.
Nate Auerbach, MySpace music marketing manager, and Sam Humphries, marketing manager, take a break from work
"We've always felt we were the original social network, but we haven't done as good a job establishing our place in the social ecosystem," DeWolfe says.
"Facebook has made inroads with the over-25, professional crowd," says Jason Feffer, a former MySpace executive who now is CEO of SodaHead, which makes opinion-poll widgets for Facebook and other social networks. "But MySpace is bigger, it has a lot more media relationships through Fox, and it has OpenSocial."
What's more, MySpace has a significant edge in the foreign market, where 80% of all Internet users reside. It has localized services in 23 countries. In other words, it has more on its mind than Facebook.
"We've been global for a year and a half," Anderson says. "There is more to what's going on than just the U.S. market. People focus on Facebook, but we have larger rivals in other countries."