The NY Times on MySpace's economics and challenges

I came across this New-York Times article about MySpace, its economics and challenges: For MySpace, Making Friends Was Easy. Big Profit Is Tougher (sub req'd). It is full of interesting data points, and is especially interesting in the light of the growing importance MySpace has in the Web 2.0 ecosystem. Not only is MySpace the second largest Internet web site in page served, it has also become a common launchpad for new startups that offer widgets that can be integrated in users' home pages. Bambi Francisco had a good piece on this “trick” two weeks ago: MySpacenomics (sub req'd).

Interesting snippets:

• MySpace now has over 70 million signed users (but the article does not mention how many users are actually active - logging at least once in the last 90 days).
• As mentioned, only Yahoo serves more pages than MySpace which is getting close to one billion pages per day.
• The yearly revenue of MySpace is pegged at $200M, with an average CPM of 10 cents – which is very low. Yahoo’s revenue is about 20 times MySpace’s – based on a more efficient monetization of their traffic (and a suite of subscription-based services).
• MySpace has so much page views to monetize that even the largest advertising networks cannot/do not want to deal with the inventory. The following tidbit is telling:

A sign of that challenge is seen in Mr. Levinsohn's effort to expand the use of text ads — the rapidly growing format pioneered by search engines. He has been running tests with Yahoo, Google and several smaller ad providers and has sought proposals from them for longer-term deals.
The answer he received was a shock. Not one of them, not even the mighty Google, was sure that it could provide enough advertisements to fill all the pages that MySpace displays each day, Mr. Levinsohn said. The search companies did not want to dilute their networks with so many ads for MySpace users, whom they said were not the best prospects for most marketing because they use MySpace for socializing, not buying.

• Not surprisingly, MySpace is going to try and integrate advertisers and sponsors in the site, and build more precise profiles of its user so that given sub-demographics can be targeted more effectively.
• A marketplace or classifieds of some sort will eventually be developed.

NewsCorp is not only counting on MySpace in their Internet strategy:

Indeed, rather than squeeze all its Internet ambitions into MySpace, Fox Interactive is assembling a network of Web sites, including IGN, a collection of sites focused on video games, and Scout, which runs Web sites for about 200 local sports teams. The News Corporation is also developing a portal devoted to entertainment, drawing from its Fox network programs, the Page Six gossip column of The New York Post and show-business reporters at the 35 local television stations it owns, Mr. Levinsohn said.

Lots of comments on the article, which is currently on top of Memeorandum.

Tags: myspace

Comments

[Jay Baldwin]

In response to "...The search companies did not want to dilute their networks with so many ads for MySpace users, whom they said were not the best prospects for most marketing because they use MySpace for socializing, not buying."

Brands are correct. Users are not on MySpace with the intent to purchase. However, I would argue that brands should realize that selling to these people are the best prospects for marketing efforts. First reason, you're building a direct relationship with individuals. This helps with long-term brand recognition and repeat customers. Second, with respect to the low CPM, MySpace users engage in the most powerful marketing: Peer-to-Peer. This demo. is an elusive, finicky, sometimes hard to reach group. If you have even a tiny percent of the 70+ million users telling their friends about your product or service that is invaluable.

Any company that remains a skeptic or a cynic will only be left behind by forward thinking companies who utilize the MySpace phenomenon.

[Steve Mansfield]

Really interesting post and statistics. It also seems to beg the question about extending these social networks into pure search. If these huge and established social networks can add a search component that contains primarily user-generated content organized by their communities and sub-communities, the possibility is there for these social networking sites to offer more traditional (and higher-performing) sponsored links as revenue generators in addition to what they are doing now. Since all the social networks know what sub-communities (areas of interest) that any particular user is participating in, sponsored links could be targeted by keyword and sub-community demographic. This could be an even more targeted method than we've seen before in online advertising and a path around the nagging problems discussed here.

[Yann N]

Very cool article. There is an interesting insight for web2.0 startups and all companies drinking the search/banner marketing cool aid (including GYM): there is an onslaught of page supply that is artificially kept off the market to keep prices high. This supply is rising with blogs, podcasts, video sharing, social networking sites, etc. This supply WILL eventually come to market when people will need to monetize, and prices will adjust downward, and we will see search and banner revenues top and reverse direction. This is exactly what happened to telecoms in late 1990's: technology increased bandwidth and international call supply at a much faster rate than demand grew, and prices plumetted: Lucent stock went from $60 to $2 until getting acquired... AT&T was acquired for the brand, and the rest of it is well known history...