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Summary:

A few days ago I had breakfast with Peter Levinsohn, President of Fox Interactive Media, days after Rupert Murdoch made a $5 billion bid for Dow Jones. We chatted about a variety of topics, but most of them were off the record. One bit I got […]

A few days ago I had breakfast with Peter Levinsohn, President of Fox Interactive Media, days after Rupert Murdoch made a $5 billion bid for Dow Jones. We chatted about a variety of topics, but most of them were off the record. One bit I got on the record was about MySpace/FIM’s acquisition strategy.

Levinsohn, who has spent nearly 20 years at various News Corp. business groups, said that the company wasn’t backing off from making acquisitions, but was looking to make small acquisitions – ones that filled out holes and helped with monetization better. (Of course this was before the $250 million rumored-but-not-confirmed-by-FIM deal to buy Photobucket.)

Looks like he was serious. FIM is rumored to have acquired Flektor, a slide show widget creator. TechCrunch reports that the price is in the $10-to-$20 million range. Fox Interactive spokeswoman declined to comment on the deal.

The deal is seen as an additive to the company’s rumored PhotoBucket purchase, which is yet to close according to our sources. While the Photobucket deal is about reuniting users with their data (after all the two most popular actions on myspace are photo-viewing and message writing), the Flektor deal is about helping those users better utilize their own data.

Flektor tools can help MySpace compete on an even footing with the likes of Slide and RockYou, both offering around 150 million slide show views a day. The acquisition, if true, is yet another proof that widget (and other start-ups) need to diversify their user bases, because sooner or later MySpace is going to end-up compete with them. This is the way of the large companies, and it is not unusual. What is strange is that start-ups ignore this fact of life – putting their destiny in other people’s hands.

Think this way – if a company trying to do an IPO gets 50% of its revenues from one customers, even the bravest investor runs away from that deal. Why should it be any different for start-ups who are basically hawking traffic and eyeball stats? Funnily enough people have been ignoring what Fox executives have been saying for a while now.

This situation is not going to change anytime soon. For first four years MySpace ended up giving up on its data to third parties, thereby boosting valuations of those third parties. Having had to spend a rumored $250 million to buy back that data, MySpace is not going to make the same mistake again.

Flektor’s competitors have hopefully learned this lesson. Rock You co-founder Jia Shen says now only 40% of their slide shows are served on MySpace, followed by Bebo and Friendster. “Our share of MySpace traffic as a function of percentage has been going down,” says Shen, who points out that while it is easy for MySpace to move into the widget space, it remains to be seen what they can do.

Slide founder Max Levchin says as “a third party developer we add a ton of value to the networks,” who sees his company as (social) network neutral. Slide is beginning to see gains on other networks indicating that it is not a MySpace-only widget play anymore. “We are happy to be growing in as many networks as possible, so reliance on any one is a bad idea.”

  1. Sort of sad for Fox. I can’t help but think that they don’t have the engineering muscle to have a cohesive technical strategy. MySpace is still Cold Fusion- Photobucket is an invisible platform- and Flextor is functionless fluff.

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  2. I don’t think it’s about technical muscle. I think rehashing the entire infrastructure will just add to expenditures unnecessarily. Why would you want to do that when everything is working fine. Like they say, “If it ain’t broke, don’t fix it.” I think a lot of acquiring companies are going to be very careful about infrastructures and how they work with them. I doubt Yahoo would mess with Flickr, Del.icio.us etc. just to make them more robust.

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  3. @ David Millsaps… I thought most parts of MySpace has now been moved to ASP.NET… did I get it wrong?

    Take a look at this link… http://www.baselinemag.com/article2/0,1540,2082921,00.asp

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  4. When News Corp bought MySpace they barely bought the face without the brains. The original founders of MySpace that didn’t end up at News Corp include Brad Greenspan (he designed MySpace’s business model), Toan Nguyen (he designed the original technical back-end), and Josh Berman (COO). News Corp merely acquired Chris DeWolfe, and Tom Anderson both of which were marketing people with no technical background. They didn’t build the site, it wasn’t their business model, all Chris and Tom were capable of was marketing the site using considerable eUniverse/Intermix Media resources. The staff News Corp purchased was only capable of maintaining the site, not developing it much further.

    Word is MySpace is so poorly managed now it is incapable of rolling out new features. Take MySpace News for example, it’s DOA. The reason we’re seeing buyouts such as Photobucket and this other potential site is because FIM is trying to find someone who can come in and actually bring MySpace up to today’s technical standards.

    The Photobucket buyout is no happy marriage either. By blocking Photobucket’s efforts to expand into the video market and establish themselves as a portal MySpace made Photobucket look weak and worth less to investors and potential buyers. In other words, News Corp and MySpace used monopolistic behavior to devalue a competitor so that they could buy them out for a smaller sum.

    News Corp is simply using scare tactics to keep competitors at bay while they try and buy up as many of these competitors as possible to maintain their edge in the market. They’re basically the new Microsoft except they’re open and up front about how despicable they are. Microsoft is still in denial.

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  5. MySpace’s whole backend is in .NET, not Cold Fusion – they rewrote a little over a year ago. And they do have the engineering muscle thse days since Fox took over, get your facts straight…

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  6. Thanks for the correction, that’s a great story. I would expect a fundamental change in tech to change their problems (and their poor URL structure) but I still get the ‘unexpected error’ message and sometimes whole pieces of functionality don’t work. Cold Fusion or not- the site is buggy as hell.

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  7. Very interesting article- it’s really nice to read original interviews instead of press releases.

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