Facebook and Google: lessons to learn from Myspace

Last week, News Corp. unloaded Myspace for a pittance. Understanding why Myspace failed to maintain its early dominance in social networking is critical to determining whether Facebook is similarly vulnerable, and whether Google+ is on the right track.

BusinessWeek’s cover story on the fall of Myspace blames the usual reasons: Rupert Murdoch lost interest, Myspace got a rep for sleaziness, it went through a crippling technology transition and users lost interest and migrated en masse to Facebook. Other critics fall back on the tired idea that Myspace’s do-it-yourself design led to garish personal pages that scared away mainstream users.

The real story? Myspace was done in by technology and business model failures that Facebook is explicitly countering. Google’s social strategy is less clear. Although Myspace embraced third-party developers’ apps and widgets, it never built out a robust technology platform of APIs and services they could use, let alone syndicate across other sites. And Myspace signed an initially lucrative advertising deal with Google that distracted it from cultivating relationships with “classier” advertisers instead of cheesy direct marketers, and from building out innovative social marketing programs.

Not every online media business has to be a platform, but an ambitious social network does, and it can’t ease up on the innovation pace. Myspace was never a very connected network: it focused on self-expression at the expense of communication and everyone “was in your extended network.” More like Geocities than Friendster, Myspace only recently adopted a feed-based UI.

In contrast, Facebook launched APIs early, syndicated them offsite with Connect, Likes and Comments, copied and/or acquired its feed – and pushed it, despite initial user resistance – and is a leading contender as a unified communications hub. Google’s first social technologies were flawed as platforms: Orkut was a standalone effort, Wave was too complex, and Buzz had no central viewing place or reason to participate. Now, Google appears to want its innovative, communications-oriented Google+ to gain traction among digerati users before it shows any APIs, but its distributed +1 Like-button wannabe has a better pitch for publishers (use it and improve SEO) than for users.

On the business side, Facebook has surpassed Myspace’s early lead in ad targeting, though it’s still highly dependent on low-priced cost-per-click advertising. But Facebook is building relationships with brand advertisers and agencies through an advisory council and social marketing test bed. Moreover, Facebook collects ad revenues and virtual currency fees from its apps ecosystem members, something Myspace never mastered.

Meanwhile, some of Google’s social impetus is defensive, geared to protect its paid search business by ensuring access to social “signals” for ranking search results. While it’s currently unconnected to Google+, YouTube counts as social media and is signing big deals with premiere advertisers and experimenting aggressively with video ad formats. Unlike Facebook’s social platform, Google’s search, maps and mobile platforms offer its ecosystem a ready-made revenue stream from Google’s ad networks, a boon for developer relationships and lock-in. Presumably, Google will offer that for its social platform. I’d give Facebook an A for its social tech platform and a B- for its social media business model. Google gets an incomplete on both fronts.

As for Myspace, it’s been acquired by Specific Media, a top-ten online ad network that already reaches 79 percent of the U.S., according to comScore. Myspace’s user information will be useful for Specific’s ad targeting, although Specific says it’s more interested in becoming a media company like Yahoo than in Myspace’s data. Myspace had some interesting ideas on curating entertainment content via professional and semi-pro editors – if Specific is smart, that effort won’t succumb to layoffs.

Myspace doesn’t seem poised to regain much past glory. Under Specific, it could survive as a low-cost, medium-sized entertainment portal. It still gets about 30 to 35 million monthly users in the U.S. and has fairly strong relationships with the music industry and Hollywood. If it works hard on sponsorships and can secure access to some entertainment exclusives, it may be able to overcome the baggage of its tarnished brand.

Question of the week

Why did Myspace fail, and what does that imply for Facebook and Google+?
Relevant Analyst
P1040724

David Card

VP Research Gigaom Research

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