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Summary:

Lately, I’ve been thinking through an oft-discussed scenario involving MySpace… one that I have good reason to believe is now highly likely in 2007. What if MySpace suddenly decided to put up tollbooths and all the players within the MySpace third-party ecosystem had to start paying […]

Lately, I’ve been thinking through an oft-discussed scenario involving MySpace… one that I have good reason to believe is now highly likely in 2007. What if MySpace suddenly decided to put up tollbooths and all the players within the MySpace third-party ecosystem had to start paying the mothership access fees?

Without doubt, a strategic shift in policy by MySpace along such lines could cause significant ripples, if not outright panic, among many of those vested in the MySpace economy.


While I can’t reveal the “deep throat” reasons for my speculation, let’s discuss some of the more publicly-known factors that could influence such of move:

  • With the departure of Ross Levinsohn as the President of Fox Interactive Media (“FIM”), the MySpace economy lost its best internal corporate champion and defender of the Web 2.0 “open & share” ethos. While the cofounders of MySpace, Tom Anderson and Chris DeWolfe, are also net-savvy and remain ostensibly in charge of the social network, they are no match when squaring off against Peter Chernin (COO of News Corp) and Peter Levinsohn (the new head of FIM). The loss of Ross was a tremendous setback to FIM, and it looks like the pain will be felt by hundreds of entrepreneurs as well.
  • Unconcerned by the virtues of operating under Web 2.0 principles, the aforementioned two Peters of the old media guard live by a different ethos: money and control. And as MySpace continues its quest for improved monetization, their objective to deliver a “clean” environment to major advertisers is increasingly aligning with their vigilant efforts to improve safety & security.
  • Given such internal momentum, Chief Security Officer Hemanshu Nigam has identified its existing level of openness to its third-party ecosystem as the number one threat to its unifying objectives.The problem here, of course, is the everlasting delicate balance between openness and control. The question is, which is the optimal path to continued growth and sustained profitability? In my view, it would be very premature and self-destructive for MySpace to close up now as social networking monetization schemes are in their infancy and the major innovations are yet to come. Put another way, while extracting rents from its third-party ecosystem may prove financially beneficial in the short term, such a strategic shift may sow the seeds of its destruction in the long run.
  • As I’m told, one of the key drivers for MySpace to start charging their ecosystem has to do with YouTube. Specifically, FIM wants to monetize all those YouTube videos that are embedded within MySpace pages. Now that YouTube is owned by Google, internal forecasts are estimating that MySpace can add as much as an additional $500 million in revenues to the existing agreement they have with Google (which is guaranteed at $900 million of revenues over 15 quarters). That’s a lot of cash, and who can blame them for wanting to secure that income stream? But if MySpace starts charging YouTube, do they have to set up tollbooths for everyone else? They’re pounding their heads against the wall on this one.These are vexing issues and I empathize with the management of FIM and MySpace.
  • And let’s be clear, erecting tollbooths is not the same as closing up behind walls. It’s a monetization strategy that could conceivably add much to the bottom line — something Murdoch insists of all his companies. At the end of the day, there’s only one thing that we can be certain of: the current relationship between MySpace and YouTube will not continue as is. MySpace will either move to monetize the relationship, or it will cut YouTube off. In either case, it will set a new policy for the third-party ecosystem.

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  1. Bob,

    I’m a partner at Lightspeed Venture Partners which is an investor in Rockyou, so as you can imagine, I’ve given this issue a lot of thought.

    The social networks need to walk a line between being as open as possible (and accepting that others may capture value on the back of their users) and being willing to forgo some user functionality in order to caputre more of that value (tollbooths and walled gardens are simply points on a continuum). The tradeoffs are different for the social networks, depending on where they are in their growh cycles and competitive positions. Myspace started as very open and some say may be considering erecting tollbooths. Bebo started very closed but has recently opened up somewhat, integrating Rockyou and some others into their system.

    I posted a related issue (what business models can widget companies have – a prerequisite for being able to pay any tolls) at the Lightspeed blog a few days ago – if you’re interested click on my name in this comment

  2. This is a delicate thing. MySpace (Fox) need to give great consideration to this and exactly how and when they would implement it. Done right and it will work well for them. Done badly and they could screw MySpace for good.

  3. suranga @ blinkx Monday, January 15, 2007

    This is an interesting area, particularly as the popular social networking sites continue to be a very good place to launch a new product/tool (assuming they ‘fit’).

    I actually thinking that (if it can be done in a non-punitive way), this could actually be a very good thing for companies in the MySpace economy.

    Today, trying to protect itself from malicious attacks, etc, MySpace has closed off many of the technological loopholes that allowed widgets and plug-ins to flourish in the early days. This makes developing such tools a technical nightmare and often leads to great features being left out due to lack of compatibility.

    If there was a more structured programme, with a level of security accountability that fixed the CSO’s problems and that delivered value to FIM, they would probably be more open to lifting some of these restrictions. This would return the innovation focus to interesting/fun tools and their features, rather than weird hacking to get round security barriers.

    Which’d be a good thing.

  4. myspace: “open” – you’ve got to be kidding. myspace did one thing right when they started and it was a fortunate oversight – they forgot to escape HTML that was entered into the profile editing pages. slowly they’ve set about correcting that by banning various tags and words entered into these profile boxes.

    the only way to extend myspace is through a series of ridiculously broken CSS and the tag – which only allows widgets to be inserted into the site using flash – which is by far overkill and inapropriate for the many of widgets that currently exist there.

    i personally believe that banning 3rd party widgets (as they are doing now in certain cases) or coming up with some kind of arrangement to charge them is just getting to greedy and might spell trouble. 3rd party widgets such as youtube, photobucket etc helped make myspace the way it is today. they don’t want to forget that ;)

    murdoch was lucky with myspace. its been a great success for him but i believe he’s very much a conventional media type. myspace’s success was made by it’s users, some clever marketing and being a relatively early mover in social networking – it’s expanded well since being aquired by FOX, but pretty much due to sticking to it’s original strategy.

    every single social network has overtaken myspace in terms of the quality of the product. and myspace can’t even fix this. by improving their technology and fixing the profile pages for example, which in itself probably isn’t too difficult, myspace will be breaking the pages of all of the users who have used any kind of customisation (10’s of millions of users). this is potentially a disaster.

    interesting times ahead!

    marcus

  5. Does MySpace have similar tollbooth agreement with other video sharing sites?

  6. by “tag” I meant the [embed] tag – which seems to have been filtered out by the GigaOm site. LOL!!

  7. Jeremy,
    Thanks for the link to your excellent post. I’d advise you & Rockyou (which is great) be cautious of one thing. I agree that key to monetization is to build a popular destination site out of the widget business. But, you should make sure that it compete directly with your social networking hosts. This is the fine line that YouTube seems to be walking with MySpace at the moment.

    Suranga,
    Your comment is spot on. Done well, it could work… and be beneficial to all parties. The devil is in the details, of course.

    Marcus,
    You might be surprised by how much Murdoch, now, gets the Web 2.0 ethos… more than most think. In my opinion, it’s not him so much as some others within his management ranks. In fact, it may turn out that Murdoch himself may end up saving the day.

    Thanks all for the insightful comments, as usual.

  8. Oops… in my reply to Jeremy, it should read “that it not compete directly with…”

  9. UpSocial – Social Nextworking Monday, January 15, 2007

    Myspace to start charging in 2007?!?…

    Lately, I’ve been thinking through an oft-discussed scenario involving MySpace… one that I have good reason to believe is now highly likely in 2007. What if MySpace suddenly decided to put up tollbooths and all the players within the MySpace third…

  10. Darren Stuart Monday, January 15, 2007

    I actually can see mySpace dying a death if they continue down this route.

    The reason it took of was the ease of personalise it and messaging.

    by removing the ease of adding 3rd parties they are opening up a huge gap for someone else.

    With their money I just don’t know why they don’t spend some serious money on allowing 3rd parties extending their platform.

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