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Oh MySpace
The $900 million deal that Google inked this week with News Corp/MySpace should finally put to rest the question of whether social media can be monetized.
The fact is you can monetize anything with that sized audience, a fact that Murdoch understood when he paid $500 million for MySpace last year, a deal that is starting to look like the best Internet purchase ever.
August 8, 2006 Venture Capital and Technology | Comments (7)
Comments
MySpace is like McDonald's: it only attracts those too stupid to eat better food elsewhere. If that's the market in which Google and Viacom want to play, more power to them.
But I don't have to pay any attention.
Posted by: Dave | Aug 8, 2006 8:19:04 AM
Should be a no brainer to monetize YouTube then. The trouble is that not one VC or one other business has figured out how to do it. It should be interesting to see how it all plays out.
Posted by: Peter Cranstone | Aug 8, 2006 9:29:49 AM
It is not monetized unless and until the ads are placed effectively, which is still a probable but not a certainty. Just because Google is proposing to spend money (over time, contingent on traffic numbers) does not mean one has monetized eyeballs (consider the AOL/TW deal - big transaction but deal was a bust, from a macro perspective).
Google gets to improve its technology, for 3 years. Interesting IP questions could come up after 3 years, if MySpace tries to go its own way. Fox gets to hedge its bet, devote its resources to getting better than Google at data mining and advertising based onmined data, if it can.
Report is that $900 million covers 2/3 of what Fox has spent on web sites. If people stop using the sites, Fox still ends up in the hole some $400 million.
Posted by: cfw | Aug 8, 2006 10:26:49 AM
sorry, i have to disagree.
google is playing a very expensive very sophisticated game here, essentially buying small opportunities at massively high prices, as a defensive move, keeping their competition out of myspace (and news corp) and tying up myspace (as google so successfully tied up AOL) even if it means -- who cares if it means -- grossly overpaying for unsellable ad space.
it stands to simple reason that google views this as a deployment of capital, not as an investment in new revenue opportunity:
google's public filings suggest they make (maybe) $0.50 per click. paying $900 million over 14 quarters (2007 - Q2'2010) boils down to $64.3 million per quarter, or $21.4 million per month. (MySpace is currently doing, what, $3 million per month?) At $0.50 click, Google will have to find 43 million clicks per month. Assume a (barely) reasonable click rate of say 0.25% (that is, 1 ad clicked for every 400 page views; generous considering the non-search-oriented, highly sticky nature of the pages) and one needs 17.2 BILLION page views per month... just to break even.
Google is super smart and super aggressive... and super cash rich, and this is not proof that social media can be monetized (as a media model, not M&A). (Of course nor is it proof that it cannot be.) But this is not a business development deal. It is thermonuclear-strength market pre-emption, the equivelent of General U.S. Grant's famous dictum that he knew he would win because he was willing to sacrifice 100 Union dead for every 1 Confederacy dead and he had more than 100X the number of soldiers. The quote from Ask.com's CEO Jim Lanzone is all you need to know: "We were pleased to be in the running on the back of our recent strides, but ultimately we had to act in a way that was financially sensible for us."
Posted by: steve | Aug 8, 2006 12:24:09 PM
If you put Google ads on your blog, you get a portion of the clickthrough revenue. Essentially, Google acknowledges that it's YOUR content that's attracting people to the ads in the first place.
That seems like the socially responsible way to monetize social media.
It's always bugged me that MySpace doesn't work this way. They're making all this money on the backs of their users, but none of it actually trickles down to the people creating the content.
So, in the context of this new deal, if someone clicks on a Google ad on your MySpace blog, are you gonna see a cut of that revenue? Nothing I've read seems to suggest that...
Posted by: Altay | Aug 8, 2006 2:44:21 PM
I remain skeptical. As someone else pointed out, the AOL/TW deal was supposed to tap into AOL's eyeballs in a significant way and was a total disaster.
Posted by: T. | Aug 8, 2006 6:12:47 PM
For those who are interested, I posted some additional analysis of this deal on my blog:
http://zenrob.typepad.com/zenrob/2006/08/googles_900_mil.html
Posted by: Zenrob | Aug 29, 2006 5:00:08 PM
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