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Google Lands MySpace
Search-Advertising Pact
August 8, 2006; Page A3
Google Inc. won a four-way race for the right to provide search technology and sell search-related advertising on one of the most popular and fastest-growing Web sites in the world, MySpace.com.
The agreement is a blow to Microsoft Corp., which late last year lost out to Google on a similar agreement with Time Warner Inc.'s AOL Internet unit and earlier this year lost to Yahoo Inc. for a pact with eBay Inc. Microsoft has been vying for such big deals in the hope they would help jump-start its adCenter search-advertising system, but with little success so far. Microsoft declined to comment.
The deal is also a huge financial win for News Corp., which bought MySpace last year just as the social-networking site was surging in popularity. Under the terms of the agreement, Google promises to pay the media titan a minimum of $900 million in cash between 2007 and the second quarter of 2010, contingent on certain Web traffic thresholds being met by MySpace and several other Web sites owned by News Corp.'s fledging Fox Interactive Media division. The deal doesn't cover FoxSports.com, which has a pre-existing relationship with Microsoft.
"The size of this deal is staggering," said analyst Richard Greenfield at Pali Capital, who has a "buy" rating on News Corp. stock. "Twelve months ago, MySpace was generating $2.5 million to $3 million a month in advertising revenue. Now you're talking about search alone being worth about $25 million a month."
Until now, many investors have been worried that News Corp. wouldn't be able to make any money off of the spectacular growth of MySpace. While the site's monthly traffic has ballooned to 52 million users, making it one of the most heavily trafficked Web sites on the Internet, it has had to work hard to convince advertisers to be comfortable amid the raucous homemade content that appears on sections of the site.
The hefty revenue guarantee also underscores the competitive world in which Google operates. In the face of intense rivalries with Microsoft and Yahoo, Google has made big financial commitments to land search-advertising deals with major partners. Last year, amid a strong threat from Microsoft, Google agreed to invest $1 billion in AOL as part of an agreement to retain its search business. At the same time, even rivals admit that Google's advanced search-ad technology and its enormous base of advertisers make it difficult for them to match the potential revenue it can share with advertisers.
Google also announced yesterday a potentially groundbreaking partnership with Viacom Inc.'s MTV Networks, under which the Web titan will distribute MTV clips to hundreds of Web sites around the Internet. With this latest deal with News Corp., Google has struck partnerships with three of the biggest media and entertainment companies along with other smaller concerns such as the Associated Press, which could help Google more broadly as the media and entertainment worlds move to the Internet as a distribution platform. The News Corp. agreement makes Fox's sites the latest Web properties to carry advertising brokered by Google. Google matches ads from hundreds of thousands of advertisers that use its online ad-auction system with search queries and content on other Web publishers' sites, taking a cut of the ad revenue.
Yahoo until now has provided Web-search technology and related advertising to MySpace, and people familiar with the matter said it was also a contender for the expanded Fox deal. "We did not see this opportunity as financially prudent or in the best interest of our advertisers," Yahoo said in a statement.
Fox also had serious discussions with IAC/InterActiveCorp's Ask.com search unit. "We were pleased to be in the running on the back of our recent strides, but ultimately we had to act in a way that was financially sensible for us," said Ask.com Chief Executive Jim Lanzone.
