MySpace and Facebook: The Ups and Downs of Social Media Companies

In 2005, Rupert Murdoch was regarded as a genius for scooping up MySpace for $580 million, besting media rival Sumner Redstone in the process.  Murdoch is now being second-guessed. This week the social media giant announced plans to cut about 420 employees – about 30% – of its U.S. staff and 450 employees – about two-thirds – of its international force.  There is speculation about the possibility that Redstone can now step in and purchase MySpace at what is now considered a relative bargain for the site — $1 billion.

According to eMarketer, in May 2009 Facebook topped MySpace as the most popular social networking site in the United States. And although as of April 2009 MySpace still led with almost 47 percent of the social networking advertising space, a Crain’s article refers to an eMarketer prediction that MySpace’s ad revenue will decline 15% this year to $495 million, while Facebook will see a 10% ad revenue increase to $230 million.

So for the moment, anyway, Facebook has overtaken MySpace as social media’s BMOC. Who will claim that title four years from now? Twitter? Or a yet-to-be identified company now incubating in some Silicon Valley garage or Silicon Alley loft? Or MySpace, once again?

Popular tastes can be fickle, after all, so how can a brand or company achieve a relatively permanent dominance in the social media space?

San Jose Mercury News’ Scott Duke Harris wrote an excellent piece last week discussing Facebook’s future, Planet Facebook: Is social networking site a phenomenon or fad?” He cites the company’s purported vision to make the terms “social connecting” and “Facebook” synonyms, just as Google became the verb for search.  More than 10,000 websites are now compatible with Facebook Connect, he notes, an easy way to sign on and provide chat feeds, videos, photos and other items to participating web sites.  The Twitter-Facebook connection is a fine example of the benefits that such interactivity adds to the online experience.

In addition to interactivity and ease-of-use, communications platforms rely on the network effect; the more users in the network, the more value that is provided to each customer in that network.  Verizon Wireless and countless other mobile phone companies hammer this point through their advertising.

But phone companies are able to lock consumers into costly contracts because they control the means of distribution; social networking brands don’t.  People can join, quit or ignore MySpace and Facebook at will.  Survival also depends not necessarily on the number of users, but the quality and value of those users to each other – something that LinkedIn does reasonably well for business professionals.

As MySpace restructures and, possibly, rebrands, perhaps it will focus its energies on what it already does best: being one of the best independently-produced music, film and comedy destinations on the web.

It’s tough being all things to all people.

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