Tuesday, June 9, 2009

Who stays ONLINE? Facebook or MySpace...

When Rupert Murdoch, the owner of New Corporation (Fox News), bought MySpace for $580 million in 2005 it was viewed by many as one of his savviest acquisitions ever. At that time, MySpace was arguably the most successful social networking site on the Web and its financial future was extremely bright. Shortly after the acquisition, a young, upstart college social networking site called Facebook began operations without much fanfare. Back in 2005, MySpace had 14 million monthly users and Facebook was still raising capital. Now, MySpace has 126 million users whereas Facebook’s user base has grown to over 200 million. Facebook continues to expand while MySpace’s growth appears to be stagnant. This led to the dismissal last week of one of MySpace’s co-founders and the appointment of a former Facebook executive as CEO.

Since 2005, MySpace has generated about $1.6 billion in revenues and earned 200 million last year alone. However, it is important to note that a major portion of its operating capital comes from $900 million that Google guarantees every year. That agreement comes up for renewal next year and the likelihood of Google agreeing to the original terms is questionable. This is probably why Murdoch is shaking things up at MySpace. While it is likely that Google will attempt to renegotiate the terms of the original agreement, I seriously doubt that it will severe all financial ties with MySpace. That would be a bad business decision and Google doesn’t make many of those!

While many social networking pundits attribute Facebook’s ongoing success to its connectivity rather than its content, I still contend that “content is king” and social networking sites built around user-generated content are great investment opportunities. After all, status updates, pithy wall comments and photo tagging tend to “get old” quickly after a few months.

While the possible loss of Google’s annual cash infusion will hurt MySpace, I don’t think that MySpace is on its “deathbed” yet and rumors of its demise are premature. The social networking universe is vast and niche networks—not large unfocused ones—will ultimately prosper because of targeted advertising and other business opportunities. That said, I believe there will always be a place for MySpace in the social networking world.

Until next time...

Good Luck and Good Networking!!!!!!!!!!

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