Google and MySpace: Woulda, Coulda, Shoulda!!

68 Comments

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.

68 Comments

Alex

And for those of you who hate MySpace, you sound a lot like the people who hated the internet for being a “cesspool.” Murdoch is absolutely right not to try to monetize too fast. He needs to build even more user lock before he starts rolling out premium services, targeted ads, etc.

Having heard more than a few companies giving out myspace addresses in youth targeted ads its only a matter of time before it starts costing money to set up a corporate myspace account.

Alex

The new google service will be called GSPOT by the way…

Krick

MySpace is a social cesspool that exemplifies everything that is wrong with both the internet and the current crop of young people in general. Google did the right thing to steer clear of it.

Tomas

Orkut is ONLY a “hit” in brazil. I would not call it enormous in any way…

Hack away at MySpace all you want. It just shows why so many Social Network sites fail to succed. There is very little understanding in the tech community on what makes something interesting to the users. It is not about the technology or functionality.

We can argue all day that MySpace sucks and that it is ugly. The fact is that it is still growing, and it is becoming the MTV of this generation.

CK

Saying that Google passed on MySpace because they thought they could do it better is speculation. While I honestly think they probably could do it betterI don’t know that would be the main reason not to buy MySpace. Additionally you mention that Orkut has gone nowhere, but that is entirely untrue. Orkut wasn’t popular in the U.S. but it was incredibly popular in other countries, especially Brazil.

The reason that I wouldn’t have purchased MySpace is that there is a very real and expensive backlash starting towards MySpace. There have been predictions this would happen since before Murdoch bought the social networking site. We are just now starting to hear about the problems MySpace is facing. A girl suing the site for $30 million because she wasn’t protected from her own stupid actions. Law makers wanting to regulate the site and make its operators liable for what is posted on the site. I would be willing to bet that over the next few years that these costs if unchecked will easily outpace whatever ad revenue is generated by the site.

There is one other thing to consider. MySpace is a fad site. It has a limited lifetime and trying to figure out what that lifespan is could be why google passed. Many of the people that helped to make MySpace popular have moved on to other social networking sites, many of them much more private (where orkut started from). With employers, schools, and others watching what is being posted on MySpace there is less incentive for people to post there.

Additionally the site has been invaded by commercial interests. Porn peddlers, dance clubs, and advertisement accounts are increasing at a significant rate. This was unavoidable due to the ease with which you can get into the network with MySpace. If anything MySpace has brought social networking to the masses and has opened the doors for private, or closed networks to flourish due to the lashback at MySpace. Maybe Orkut was before its time and Google realized that when they had the opportunity to buy MySpace.

Of course just like everything else in this article/thread it’s just speculation.

Tom

So who has a MySpace page, and uses the search from within that page instead of going out to google anyway?

Even if google powered the MySpace search engine, I’d still open a second window or tab, even, to google for searches…

Steve

Actually, Google has a social networking site for a long time now: Orkut. Like GMail, it’s invite-only; an enormous hit outside the US.

dave

uh, dudes, i read that same article earlier today and you have got to remember two things that are very important: 1) rupert is a spectacle in constant need of market affirmation and 2) the claim which he made, upon which the entire post and thread is based, is completely unverified and wholly unsubstantiated – as fascinating as it is, wired didn’t even bother to follow up on it (so what does that tell you?)

remember, al gore invented the internet too…

Om Malik

Just to add further to the previous comment – well had they bought MySpace – and had MySpace continued to zoom up like the way it has – imagine how many million more customers/users for their floundering products such as gtalk.

or how about using that MySpace base to get more gmail users. (GMail is a good way of making them ad dollars.) maybe it doesn’t have to be an obvious answer all the time.

Om Malik

heyisforhorses… so it is tough to say that there is no revenue at myspace. i think there is revenue – estimated to be around $200 million in 2006 according to some analyst estimates. that is better revenue than say a google base or whatever.

I think the point is that, if they had bought myspace, they would have more lock in on the traffic that comes from myspace. what if, microsoft becomes the preferred search partner at myspace?

i bet, if they did buy myspace, they could have monetized it better. look at how effective Google is on Blogger.com pages and other pages on their site.

of course all of you remember google trying to create their own social network – orkut. that did not go anywhere.

tyme

I’d rather Google not be associated with MySpace. I don’t think it was a blunder, I think it was a smart choice. Things like MySpace come and go in a matter of years – I give it 2 more years before it dies (don’t quote me on that).

Robert

If my job was to purchase myspace (if I was any company) I would also pass. It is a terrible mess of code, written in a mix of cold fusion and ASP (they may have got rid of CF completely by now). It needs a full rewrite IMO.

Google could make it’s own using all of the libraries they have available and use on most of the google owned webpages. If they wanted to, they will do it. They have enough user base to populate it too.

Jimmy

I’m very happy and I’m not shocked why Google isn’t buy that ’service’. Who wants to buy tons of traffic of spam generated by bots? MySpace can live because everybody can create really ugly, chatotic, mindless BUT custom pages with 3th party tools – they are totally useless.

Robert Dewey

Social networking is the way of the future, but walled gardens like MySpace and TagWorld definitely aren’t going to cut it.

The Dude

Uh… I’m pretty sure google is still thinking… “We can do better”

Brick Hamlin

I agree with heyisforhorses – loud, attention grabbing headlines are not why I read Om’s blog. That’s what I expect from my local news and Fox News – the bait n switch. I continue to read here because I expect not to get that kind of attention hogging but lack of substance stuff.

dH

Everybody knows Myspace is the most huge place of trash/garbage pages on the net. Dozens of pages are generated by bots, linked/invited to other bots. 98% Bulletins are also automatically generated, so Myspace is a traffic-eater spam-nest of the promoter bots.

I’m very happy and I’m not shocked why Google isn’t buy that ‘service’. Who wants to buy tons of traffic of spam generated by bots? MySpace can live because everybody can create really ugly, chatotic, mindless BUT custom pages with 3th party tools – they are totally useless. I’m sure if google buys this stucked piece of hell then advertisers money also go in to the trash and shareholders also may think ‘what’s wrong with Google?’.

They will create/buy their own “MySpace” if it’s really important.

Jacob Varghese

Uh Steve, you do realize that Google owns blogger.com – user-generated content.

Mark W

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.

heyisforhorses

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.

steve

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.

JustTheFacts

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…

Brock

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.

rick

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

rick

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.

Larry Myers

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.

Jimp

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…

rick

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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