MySpace gets its mojo back by opening door to developers
Social network recaptures its audience with inventive applications.
By Dawn C. Chmielewski and Jessica Guynn
Los Angeles Times Staff Writers
May 24, 2008
Last fall, MySpace looked like a dance club in need of a new DJ.
Its users were spending less time on the social networking site as upstart Facebook Inc. added new members at a breakneck pace and stole the spotlight with splashy interactive features that MySpace lacked.
The final blow came in the form of an investment from Microsoft Corp. that gave Facebook an eye-popping $15-billion valuation. MySpace no longer seemed the jewel it was in 2005, when News Corp. Chairman Rupert Murdoch was hailed as a genius for snapping it up for $580 million.
"Facebook awoke the sleeping giant," said social networking expert Joseph Smarr, an engineer for online address book Plaxo Inc.
So MySpace went to Silicon Valley to get its mojo back. To counter the perception that it was a digital laggard run by Beverly Hills posers without technical chops, it set out to win over the inventive software developers who make the entertaining applications that keep users hanging around.
MySpace was the first to attract these developers with its mass audience, but Facebook had grown popular by allowing them to cash in on features they created, such as Food Fight, which let users throw digital food at each other, and Causes, where they can join social or political campaigns.
MySpace decided to win back these developers by making it easier for them to make money from their viral creations. Now, that campaign is beginning to pay off. Some 1,000 new applications created for MySpace in the last two months by more than 10,000 developers have helped keep MySpace's 117 million global users on the site longer.
This month, some major Internet players -- Yahoo Inc., EBay Inc. and hot start-up Twitter -- backed a MySpace initiative that lets users bring their profiles and network of friends to these sites.
Taking such a high-profile role in the high-tech world could help MySpace in another way: by turning its millions of users into advertising gold.
MySpace already has an edge. It attracts one in four Americans. Some 12% of the time spent online in the U.S. is on its pages. If it were a country, the site's virtual community would rank as the 11th-most-populous nation, after Japan.
But MySpace, like other social networks, has struggled to make money from its online hangout. Its revenue growth, though up 49% per user over last year, fell short of the company's predictions in the most recent quarter, prompting concern among Wall Street investors.
News Corp. President Peter Chernin blames the sluggishness on an excess of online advertising inventory, which has depressed prices, and the challenge of creating a new category of advertising that mines the wealth of data about users and their friends without alienating them. After all, people hang out on social networks to chat with their friends, not to buy products or services.
Even so, MySpace is expected to collect 53% of the estimated $1.4 billion that advertisers will spend this year on social networks in the U.S., according to industry researcher EMarketer Inc.
And MySpace Chief Executive Chris DeWolfe said new initiatives, such as hyper-targeted advertising, show real promise. Chevrolet has already used hyper-targeting to display ads to MySpace's snowboarders. Another ad project in trials focuses on small businesses, allowing a dry cleaner to issue discount coupons to every soccer mom in a five-mile radius.
"We're obviously huge believers in social media," DeWolfe said. "We've been in business for four years. We've pioneered new revenue streams. . . . Now, it's just a function of broadening relationships and leveraging the special capabilities we have."
But analysts such as Bernstein Reseach worry that the cost of adding features and advertising tools is chewing into the profit margin.
MySpace enjoys a unique position among social networks as a technology company incubated under Hollywood's klieg lights. That helped pave the way for the recently announced MySpace Music joint venture with Universal Music Group, Sony BMG Music Entertainment and Warner Music Group. The venture takes the largest online music community and creates a marketplace where people can listen to music for free or buy downloadable tracks, merchandise and concert tickets.
For a market leader with such heft to be overtaken on the buzz meter by an upstart like Facebook was humbling.
Facebook's initiative last May to invite developers to create entertaining features for its users was an instant success: It spawned what has been dubbed "the Facebook economy." Facebook CEO Mark Zuckerberg announced the initiative at a packed event. "Right now, social networks are closed platforms," he said. "Today we are going to end that."
Soon developers were dreaming up all kinds of features, including the practical, such as buying music or scouting vacation spots, and the quirky, such as biting your friends to turn them into zombies. The features spread quickly because users could alert their friends when they added them. As Facebook's population skyrocketed, MySpace grew uneasy.
"Companies get complacent when they are in the top market position," said Yanda Erlich, founder of Social.im, which makes instant messaging software for social networking sites. "But MySpace realized that if it just sat around and did nothing, Facebook was going to eat its lunch."
The turning point came last October, on the two-year anniversary of News Corp.'s acquisition. With the average time spent by users declining, MySpace chose the Web 2.0 Summit industry confab to signal its desire to put down roots in the high-tech community.
Sitting on a red couch alongside Murdoch in a packed hotel ballroom, DeWolfe spoke the words developers had longed to hear: MySpace was committed to opening up its platform, giving them access to a much larger audience.
A month later, MySpace and Google announced OpenSocial, which established a common set of standards for developers to write programs for social networks. A bit geeky, it's true, but it meant developers could spend their time dreaming up novel applications instead of thumbing through programming manuals to adapt the software for each individual network.
"It was one of the first steps on the Internet to create a truly open, truly social Internet that's friendly to application developers," DeWolfe said.
It won support among creators of Facebook's most popular programs, including Slide Inc., the San Francisco company that makes features that allow users to virtually ninja kick or throw sheep at friends; ILike, which lets them add music and videos to their profile; and Flixster, which enables the sharing of movie reviews.
MySpace threw its Silicon Valley coming out party in February. The gala at MySpace's new offices in San Francisco's trendy South Park featured sandboxes, pails and shovels, alongside burgers and fries, and a host of Web celebs: Google social networking guru Joe Kraus and Slide CEO Max Levchin. The only hint of Hollywood was the swag: a black backpack that included a FlipCam Ultra pocket-size digital camcorder.
"They have done this humongous about-face," said Jia Shen, co-founder of Web applications firm RockYou.
No one would know better. Shen and his wingman, Lance Tokuda, got their start on MySpace when they wrote a Web application that could turn anyone's photos into a slide show. That application and subsequent ones were huge hits, but MySpace had a "we don't need you" attitude, Shen said.
So RockYou defected a year ago, when Facebook opened its site to developers and made it easy for them to make money from their applications. Though RockYou became one of the most popular purveyors of new features on Facebook, it has returned to MySpace now that it is letting developers collect their own ad revenue.
"We had not launched a single new thing on MySpace for 12 months," Shen said. "This month we launched 12 new things on MySpace. . . . They are creating a real ecosystem where a company like ours can do well."
With more than 300,000 developers working on 24,000 applications, and with 98% of Facebook users having tried at least one, "Facebook applications have reached a mature stage," said Ben Ling, director of platform product marketing at Facebook. "It's still early for MySpace."
With MySpace letting them play in their sandbox, developers no longer seem to be so avidly rooting for their hometown player, Facebook.
"MySpace is 180 degrees from where it was a year ago," said Dave McClure, an entrepreneur and guest lecturer at Stanford University who runs a popular social networking conference. "Before the perception was that MySpace was in trouble. Now the perception is that it's catching up."