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Rise and Fall of MySpace is A Lesson for Facebook

MySpace was the king of the early social Web, with nearly 76 million monthly unique visitors at its peak in December 2008. It spawned the careers of several music mega-stars, and brought in as much as $470 million a year in advertising revenues. When News Corp. purchased the social network for $580 million from Intermix, MySpace was poised to become the transformative centerpiece of a new media empire. Shortly thereafter, a 21-year-old Mark Zuckerberg turned down a $1.6 billion offer from Yahoo!, and the world balked at his seemingly uncontrollable arrogance and idiocy. My, how time reveals all.

This week, with the backdrop of LinkedIn, Pandora, Groupon and Zynga enjoying multi-billion dollar valuations, MySpace was auctioned off to Specific Media (and Justin Timberlake) for a paltry $35 million, shrinking into the shadows of the new era of online and social media. Facebook, once dwarfed by the size and power of MySpace, is poised to go public in the next 9 months valued at over $100 billion. It seems Mark Zuckerberg, now personally worth over $18 billion thanks to Facebook, isn’t the arrogant fool many perceived him to be.

Instead, Zuckerberg is hailed as a genius, a visionary and has been crowned the King of the Web. His company is expected to pull in $2.19 billion in revenues in 2011 and double- and triple-digit growth in annual display ad revenue has vaulted Facebook past Yahoo! and Google to the forefront of display advertising. Today, Facebook enjoys the company of over 700 million users, while MySpace continues to shed millions of users and traffic has fallen off a cliff.

MySpace v Facebook BloombergBusinessWeek

Facebook is on a tear, and at times appears unstoppable. But if there is one thing Silicon Valley and the online world has learned, things can change in a heartbeat. As Google likes to say, the competitors are always just one click away, and in social networking, any exodus almost exclusively means a total exodus. When your friends flee, you flee. Facebook must learn from the mistakes MySpace made if it wants to avoid the same fate, especially considering how poorly regarded the company’s image is in spite of its massive size and success.

Mismanagement, a total disregard for the user, an onslaught of spam, fake profiles and spammy features and an ill-fated sale to a massive old media overlord are just a few of the missteps that took MySpace from a company that could have been worth billions to a nuisance happily discarded for pennies on the dollar.

Facebook’s first achievement on this path came years ago, when Mark Zuckerberg shocked the world and turned down a $1.6 billion offer for a company with little to no revenues. MySpace co-founder Chris DeWolfe noted to Bloomberg Businessweek that the News Corp. acquisition deprived his company of the start-up culture upon which the company was built and thrived. A relatively slow and simple introduction of advertising features on Facebook, partnered with a voracious focus on the user experience, has kept Facebook users from feeling exploited (at least not by ads, privacy concerns are another issue.) Partnerships with Zynga (which just filed to IPO valued at $20 billion and is hoping to raise up to $1B) and search giants Bing, Yahoo! and Google have made Facebook the core of the modern Web experience.

The potential for Facebook to succeed where MySpace failed is astounding, but rather than celebrating their victories over the fallen competitor, Facebook must treasure the opportunity to explore exactly how MySpace fell short, and how they can deliver mind-blowingly positive experiences to their users every step of the way.

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Img. Credit: Bloomberg Businessweek
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