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Summary:

By Robert Young In the latest (July) issue of Wired magazine, Rupert Murdoch claims that Google… “…could have bought MySpace three months before we did for half the price. They thought, ‘It’s nothing special. We can do that.’” So that means Google could have acquired MySpace […]

By Robert Young

In the latest (July) issue of Wired magazine, Rupert Murdoch claims that Google…

“…could have bought MySpace three months before we did for half the price. They thought, ‘It’s nothing special. We can do that.’”


So that means Google could have acquired MySpace a year ago for about $290 million. Talk about a strategic blunder… the thought of Google and MySpace, combined, boggles the mind. Instead, Google is left thinking of what could have been. And to add insult to injury, it may turn out that *not* acquiring MySpace may end up being more expensive for Google!

As widely reported, MySpace is now the largest source of search traffic for Google, accounting for over 8% of their inbound traffic as of early May. That essentially means that MySpace is responsible for about $400 million of Google’s annual revenues. Knowing this, MySpace is trying to capitalize by holding an auction for its search business. If Google wins, it will end up sharing a significant percentage of that $400 million with MySpace… John Battelle thinks the split to MySpace will be close to 90%. And Google would need to pay it every year. Needless to say, had Google acquired MySpace, no such payments would have to be made.

In addition to the real costs that Google is likely to incur, there’s also the opportunity cost. Had Google acquired MySpace, they would likely be ranked the #1 Internet property on all user & usage metrics… nudging out Yahoo! from that top spot. It certainly would have been quite a sight to see… being #1 overall, based on its dominance in search fortified with an even greater dominance in the social networking category. It certainly would have cemented Google’s leadership into a near-ineffable state of invincibility.

Having said all that, I personally believe it would be foolish for Google to pay MySpace anything. Even if MySpace strikes a deal with a competitive search engine, it’s highly likely that the users will simply bypass the default and go to Google anyway.

Robert Young is a serial entrepreneur who played a major role in the invention & commercialization of the world’s first consumer ISP, Internet advertising (pay-per-click ads), free email, and digital media superdistribution.

  1. Google is human after all! Sometimes there’s more to a phenomenom than just the technology behind it.

    However, I read that Bus 2.0 story and gleamed the fact that News Corp still doesn’t know how to make money off of MySpace. So the jury is still out.

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  2. I guess 400*80-90% means $320-360M straight to the bottom line?? Based on current EBITDA numbers- its should add about 7-8% to the total figures.

    If you add traditional display ads sales it could go up even more to more than 10% of EBITDA. I think Myspace is beginning to make an impact on Newscorp. Not sure if the NYTimes article over the weekend (http://www.nytimes.com/2006/06/25/business/yourmoney/25frenzy.html?ei=5088&en=83d3816749d83ec4&ex=1308888000&adxnnl=1&partner=rssnyt&emc=rss&adxnnlx=1151421606-rgCcrD76 QrHmkJ///PT2A) holds water…

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  3. I’d imagine News Corp has no clue how to make money off of MySpace because News Corp is large, slow, and everything that embodies big business, where as the people that congregate on MySpace are the exact opposite. Corporate has never really figured out how to deal with anti-corporate properties.

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  4. Larry, that’s what the jest of the whole article. Give News Corp credit for getting their hands in the internet and buying MySpace. They are taking a “corporate hands-off” approach to wrestling the beast. They don’t want to upset it.

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  5. I suppose Google should have just paid the measly quarter million dollars for the potential. It’s not like they were betting the farm of $2 billion like EBay on Skype. In fact, in comparison, what a golden deal.

    sorry, I just can’t get over the skype deal

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  6. I expect that three years from now everyone will still use Google as a search engine. I do not have the same confidence in MySpace.

    MySpace has taken social networking to new heights, but social networking it remains. If News Corp. does not make its money back in the next two years, I expect they never will. Remember, Traffic /= Sustainable Business Model.

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  7. JustTheFacts Tuesday, June 27, 2006

    I’m not so sure it was a bad idea not to buy MySpace. The company is still not profitable, it is a public relations nightmare (may have even alienated some of Google’s current advertisers), and there is no indication that something revolutionary will come of out more than banner advertising. If you add Blogger to Google they already are number one, so no-one thinks like that and wouldn’t even if they bought MySpace. Finally, even you yourself say that Google should not pay anything because that 8% is just due to the large volume of traffic. If MySpace never existed those same suers would still be using Google. So…not sure why your post is titled coulda woulda shoulda…

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  8. Google was/is smart. Yahoo bought GeoCities. BFD. Lycos bought Tripid and AngelFire. BFD. Excite bought Bluie Mountain Arts. BFD. Google knows that personal homepages — ooops, I mean User Generated Content — is a vast hole into which one throws copious amounts of brainpower and money and resources and out of which one gets porn, spam, and lawsuits from angry people. No search engine or portal has ever made a dime off this stuff and Google knows it and is keeping its eyes on the ball, unlike News and Murdoch, who famously have always been willing to throw huge sums of money at seemingly nutty stuff (some of which turns out to be hugely valuable like the Fox TV network), and especially when they have to play catch-up.

    Plus ca change.

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  9. heyisforhorses Tuesday, June 27, 2006

    You have not made your case for why this is a blunder move by Google. $290m divided by earnings of $0 or negative gives you a pretty crappy P/E. Why should Google shareholders be upset about this? These kinds of posts remind me of the stuff written during the bubble. There’s no justification for buying it at even $50m if it can’t make money.

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  10. MySpace is the crappiest looking site I have ever seen. It will have to go away one day. If it does not go away, then there will have to be a complete overhaul of it. The coding on its pages is horrendous. The videos and songs that start by themselves at volume levels that are way too loud are horrible. The color schemes that cause the text to be unreadable is awful. There are way too many problems with MySpace. When all the kids that are using it grow up, they are going to want something more sophisticated. I am glad Google is not associated with a website as tacky as MySpace.

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