Quantcast

Plenty of Users, Too Few Dollars Trying to Turn Popularity into Gold, MySpace Gets New Look

June 16, 2008

By Brian Stelter

When News Corp. added MySpace to its portfolio nearly three years ago, it expected that if its base of 20 million users kept growing – and kept each interested by adding friends, sharing photos and swapping flirty messages – the advertising dollars would roll in.

The social networking site has indeed grown – to 118 million registered users – and the flirty messages have not stopped. But the cash is not coming quite as quickly as the company had hoped.

In the fiscal year that ends in two weeks, the News. Corp unit that encompasses MySpace will miss its $1 billion revenue target. When News Corp. announced the projected shortfall in April, several analysts downgraded the company, sending shares down 5 percent.

With an eye toward profits, MySpace is being redesigned, beginning this Wednesday, with a new home page that will be less cluttered and more hospitable to advertising. (The new home page will also feature a “takeover” by an ad for the new Batman movie.) The six-month redesign will eventually include a new navigation bar, search tool and video player.

The redesign is intended to address one of the persistent problems of social networking sites: that many user pages have been designed with the aesthetic appeal of a 14-year-old’s high-school locker. But there are still many unanswered questions about the advertising value of social networks.

In the past few months, the bloom has come off the social networking rose. MySpace and its chief competitors Facebook and Bebo all have bold plans to make money, but insufficient proof that the plans are working, some analysts say.

“The jury’s still out on MySpace’s ability to monetize,” said Michael Nathanson, an analyst at Sanford C. Bernstein & Co.

On their face, the sites seem appealing to advertisers. MySpace has a U.S. audience of 73 million, and Facebook counts 36 million, according to comScore. Worldwide, Facebook tied MySpace for the first time in April, with about 115 million users for each. Users spend hours on the sites, looking up friends and sharing content.

But because MySpace commands a majority of all the money spent on social networking, it is seen as a bellwether for the nascent industry.

During a conference call last month, the News Corp. chief operating officer, Peter Chernin, moderated the once-grandiose expectations for social networking advertising and acknowledged that selling spots on profile and group pages was far from easy.

If the balloon of unrealistic and unrealized expectations has not quite popped yet, it is at least losing air. The attitude change was first detectable at the end of January when, one year into its $900 million pact with MySpace, Google said social networking inventory was not making money as well as expected. More recently, it has said the situation is improving.

The new conventional wisdom was cemented in April when MySpace’s parent unit, Fox Interactive Media, confirmed it would miss its revenue goal.

Nathanson said MySpace’s moves have been frustrating. “We don’t have much conviction in the long-term ability to grow this business, based on what we’ve seen lately,” he said.

Other analysts have a more bullish view. Anthony DiClemente of Lehman Brothers recommended News Corp. stock on Friday partly due to MySpace’s 25 percent to 30 percent year-over-year revenue growth.

MySpace, naturally, agrees with the more optimistic view.

“We’re seeing the dollars come in,” said Jeff Berman, who was promoted to president of sales and marketing for MySpace in April amid the rearranging of Fox Interactive Media’s sales force. Revenue per user is said to be up 50 percent over last year, but the site is still pulling in only about $6 per user per year, given that it expects to make $755 million this year and has 118 million active users per month. Facebook is estimated to earn $265 million in ad revenue.

The companies are acting swiftly to solve the social networking riddle. MySpace is keen on hyper-targeting, which places users into “buckets” based on their interests and delivers ads accordingly.

Close to a third of buys on MySpace are hyper-targeted now, the company says, and 250 staffers are assigned to the technology.

Facebook has a similar targeting system, called social ads. Advertisers choose an audience. Want to reach Florida college students who watch “Sportscenter” on ESPN? There are 10,680 on Facebook. Then, create a simple ad and set a budget. It takes a matter of minutes. MySpace’s version, called SelfServe, is being tested.

Bebo, the social network born in Britain and now the third largest in the United States, was purchased by AOL, a unit of Time Warner, last month. The company has vaguely said it will use Platform A, AOL’s advertising entity, to monetize the site.

But for many media buyers, these advertising models are still experimental. At the same time, advertisers’ budgets are softening amid with the economy. Last December, eMarketer forecast $1.6 billion in social network spending in 2008. In April, it revised that figure down to $1.4 billion.

“The challenge is that all these new forms of advertising are more difficult to plan, measure and quantify than advertisers are used to, and that has impacted spending growth,” Debra Aho Williamson, an eMarketer analyst, wrote in an April report.

Berman said that “with new advertisers, there is certainly an education process,” and the sales staff is trying to oblige. For example, executives from Procter & Gamble, one of the world’s foremost advertisers of consumer goods, visited MySpace’s headquarters in April for a day of meetings about social network advertising strategies.

Still, there are questions whether social network users view ads, no matter how carefully targeted, or retain information.

“Users’ attentions are the most scarce element on most social networks,” Chamath Palihapitiya, the vice president of product marketing at Facebook, said. “A successful ad product has to capture that scarce attention, and engage it in a way that’s social and relevant.”

So what can accelerate the advertising fortunes for social networks? The sites don’t answer the question directly. But social ads are Facebook’s first step. They can take organic social actions – like a user self-identifying as a fan of Nike – and pair it with an advertisement tailored to that user’s friends. “Your friend is a fan of Nike,” the ad would say.

Berman noted that home page ad executions – like last Thursday’s for “The Incredible Hulk” and this Wednesday’s for “Batman” – can reach 40 million users on a given day, “bigger than the biggest broadcast television shows.” Home page displays are normally sold as part of million-dollar advertising campaigns across the site.

Chris DeWolfe, the president of MySpace, thinks the skeptics need to take a deep breath. It took Google five years and Yahoo eight years to get to the stage of growth MySpace has reached in four years, he noted.

Palihapitiya of Facebook also takes the long view. “This is a journey that is going to unfold over the next 5 to 10 years. That’s when the winners will emerge,” he said.

Originally published by The New York Times Media Group.

(c) 2008 International Herald Tribune. Provided by ProQuest Information and Learning. All rights Reserved.




comments powered by Disqus