InfoSpace, In For Trouble

Given the mobile content company InfoSpace said it lost a major wireless carrier account last month, it’s not a big suprise that the Bellevue, Washington-based company has now announced major cuts. InfoSpace said it will cut around 250 positions starting in the third quarter of 2006 and continuing through the middle of 2007, which is more than a third of its staff. Ouch.

While InfoSpace didn’t name the lost carrier, a source tells us that it’s Cingular that decided to do a direct licensing relationship with the major record labels. Other reports have said the same. But beyond the Cingular deal, the real problem is the terrible margins in the market of serving up ringtones for record labels, who can easily cut out the middle man. InfoSpace is likely losing money on every sale it makes.

The company is struggling to reinvent itself, and is rumored to be getting out of the game business completely. It would be smart to focus on its mobile search strategy. Smaller ringtone companies like Mixxer and Moderati have been refocusing their ringtone businesses on social networks and mobile community sites. Cell phone users might still be buying ringtones, but the matured market isn’t good for the InfoSpaces of the world. What do you think ringtone companies should do?


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