The $US900 million ($A1.18 billion) deal for MySpace, announced on 8 August 2006, between News Corp and Google is a milestone in the history of the commercialisation and monetising of social networking websites.
How did we get to such nine and ten figure numbers?
- In 2005 News Corp bought MySpace paying $US585 million when MySpace had 45 million registered users. Also vying for the asset was Viacom. MySpace had been established by a Los Angeles Internet marketing company, Intermix Media, Inc. Intermix states on its website that it began in 1999 as a network of content sites offering entertainment, humour, and community and that it virally marketed its brands and their message.
- After acquisition MySpace’s registered user numbers continued to grow exponentially. Currently there are 103,103,710 members.
- In 2006 Google agreed to pay News Corp’s Fox Interactive Media up to $US900 million, over almost four years from 2007 to 2010, for the right to sell ads on Fox’s sites, subject to Fox meeting traffic targets.
- Presumably Google was very much attracted by the number of eyeballs on MySpace.
- Also note that “Fox was the top-rating TV network for American adults aged 18 to 49 in the last season”. This is according to Neil Chenoweth, writing in The Weekend Australian Financial Review on 12-13 August 2006 at page 12. The article is astutely headlined “Murdoch carves winners from US culture”.
- Chenoweth, a Murdoch watcher and indeed Murdoch biographer, also notes “The Fox News audience is 75 per cent higher than that of CNN, its nearest rival…” and “News Corp’s core US operations… account for more than 75 per cent of the group’s operating profit.”
- Google will also provide its search engine to MySpace and Fox Interactive Media’s other sites, such as games site IGN, sport site Scout.com and movie site Rottentomatoes.com. News’s main sports site, Fox Sports, has been excluded because it has an existing deal with Microsoft.
- The deal reserves the right of News Corp to sell display advertising directly, the deal only covers text-based search and keyword advertising.
The Context – Competition and Business Models
- Social Networking: 21 companies, total: $95.8 million, 8 undisclosed
- Business Social Networking: 3 companies; total: $21 million, 1 undisclosed
- Video Sharing: 14 companies; total: $60.2 million, 5 undisclosed
- Photo Sharing: 8 companies; total: $68.26 million, none undisclosed
- Mobile Social Media: 13 companies; total: $67.35 million; 2 undisclosed
- Google Adsense or similar offerings for Website operators,
- “intelligent text” offerings for Website operators, eg as marketed by Vibrant,
- media portfolio offers by major players such as News Corp, NineMSN, F2 and Telstra/Sensis; each says give us your money and we’ll give you exposure across our portfolio of online properties, and
- the “affiliate” arrangements model (whether as a list of links or with a banner); a sort of you scratch my back and I’ll scratch yours approach involving collaboration paid or free of charge between like-minded sites. You see this in blogs which mention their “favourite blogs” or lists of links on high traffic websites.
How big and where is the advertising revenue pie? The Audit Bureau of Verification Services provides this market data:
In Australia in the 2004-2005 financial year online advertising revenue grew 62.7% to reach $A488 million. The finance industry continued to be the top spender in the general advertising category with the recruitment sector maintaining its number one position for classifieds.
More recently, total online expenditure for the second quarter of 2006 topped $226 million, representing growth of 59.4% over the past 12 months. General online advertising grew 32.2% to be worth $A76 million in the quarter. Classifieds online advertising grew 8.1% to $A67 million and search and directory grew 9.9% to $A83 million.
- dynamic content, RSS feeds, tagging, mash-ups, collaborative content creation (eg as on Wikipedia),
- participatory or interactive facilities (feedback loops, forums, message boards, rating or voting options, polls and chatrooms),
- places to “window shop” while communicating with others (an example might be Trade Me, the New Zealand auction site bought by Fairfax for $625 million in 2006), and
- a culture of “user-generated content welcome here!”.
How to Grow Social Networking
- The currency is human attention. Work with it. Discourage abuse of it.
- You are in the relationship business.
- Welcome newcomers. Help them find their place.
- Show by example.
- Strive to influence and persuade.
- Have a big fuse. Never let the bottom drop out.
- Use a light touch. Don’t be authoritarian.
- Affirm people. Encourage them to open up.
- Expect ferment. Allow some tumbling.
- Leave room in the rules for judgment calls.
- Fight for tolerance.
- Encourage personal and professional overlap.
- Don’t give in to tyranny by individual or group.
- Encourage face-to-face encounters.
- Help it be “women-friendly”.
- It isn’t just you: let the people help shape it.
- Be part of the community.