Posts Tagged ‘News Corp.’

No Silver Bullets @ MySpace: Sacking Chris & Tom Was Easy; Now What?

April 23, 2009

So the new surprising news is out that MySpace founders Chris DeWolfe and Tom Anderson are leaving the helm of the pioneering social network.

The two big questions here are: Why did DeWolfe and Anderson get pushed out of their executive roles? And what does this mean for the future of MySpace?

I don’t know for sure what prompted their departures but I suspect it had much to do with the April 1 appointment of Jonathan Miller as Chairman and Chief Executive Officer, Digital Media Group and Chief Digital Officer for News Corporation, reporting directly to Rupert Murdoch. Until Miller’s appointment, the buzz in tech and media circles was that News Corp probably wanted to retain DeWolfe and Anderson. After all, the two founders built up the site from nothing, creating the world’s largest social network in terms of revenue. Then Miller took charge and gave the two founders the boot.

Miller is clearly under pressure to pull some big and bold moves to help get MySpace back on a sustainable growth path. Sacking DeWolfe and Anderson is an easy first move, though I am not sure it is the wisest. In his new job, Miller was given control of Fox Interactive Media, including its primary asset MySpace, and News Corp’s interest in the Hulu online video site. He will also collaborate with operational heads and digital executives through all lines of business around the globe to develop and refine digital efforts.

Reports have said that Miller hadn’t been planning on getting rid of DeWolfe in the near future until TechCrunch reported this week that the company had hired a headhunting firm to look for possible replacements. But clearly Miller was not gung-ho on keeping the founding team in charge or he would have locked up that deal as soon as he took charge.

And now the bigger question: What is the future of MySpace? Getting rid of DeWolfe and Anderson is not going to solve its problems–and it may make them worse in the near term by sapping morale and spurring an exodus of managers who remained loyal to Chris & Tom.

The key issue for MySpace is strategic. Until now, MySpace had positioned itself as the anti-Facebook. While Facebook’s strategy is all based on maximizing user growth and rolling out translations of the site in every imaginable language, MySpace, as part of a publicly traded company, has been pursuing a more conservative tack of dialing back on growth to maximize profits.
Last November, MySpace head of international operations Travis Katz told me that the horse race wasn’t that important. Since about 85% of the world’s online ad spending is concentrated in five markets—the U.S., Britain, Japan, Germany, and France—Katz said we are “not worried about rolling out in every single country.”

If Miller does bring in former Facebook Owen Van Natta to head up MySpace, it suggests that the company may be shifting course and turning up the dial on growth. The risk, of course, is that by pursuing growth, the units profits and margins get crushed.

If Miller & Co. do not go for growth, then they will surely need to overhaul the company’s business model. The company’s hyper-targeting program for advertisers has helped but MySpace needs to find ways to generate sources of revenue other than advertising. Making matters more challenging, is the impending end of MySpace’s $900 million advertising deal with Google in the second quarter of 2010. If that deal is renewed, which is not a guarantee given Google’s disparaging comments about monetizing social networks, it is sure to be at a much lower rate.

So any way you look at it, it seems like it’s going to be another tough year for MySpace. The company is facing some hard decisions during a deep recession, and it just lost its two visionary anchors.

Microsoft Walks from Yahoo Deal; Ball’s In Your Court, Jerry

May 4, 2008

Wow. I can’t believe Microsoft actually walked away from the Yahoo! deal.

But while I am truly surprised, I believe Steve Ballmer made the right call. I’ve said from the beginning that this deal was too big and too risky–I called it a potential merger from hell several times around the office and on TV–especially given the cultural differences between the two companies and the fact that Microsoft had never before pulled off an acquisition of this size.

Now that the tech industry’s biggest soap opera appears to have reached its dramatic conclusion, there are two big questions to answer:

1. Why did Ballmer and the Microsoft board pull a 180 and change their mind?
There’s got to be more to this story. Some people will wonder why Microsoft did not come back with a slightly higher offer, in the $34 to $35 range, which could have sealed the deal.

Something happened during this process that gave Microsoft the willies. Maybe it was the strong negative reaction from their employees that caught management off guard. Or maybe it was Yahoo’s determination to not break. Or maybe Ballmer underestimated the greed and toughness of some major shareholders.

To me, the behavour of the reluctant shareholders is just as surprising as Ballmer’s retreat. Reports have said that some big Yahoo investors such as Legg Mason were holding out for $34 or $35 a share. Given that Microsoft was willing to offer $33 a share, those shareholders will probably live to regret that position.

But while Ballmer ultimately did the right thing for his employees and shareholders, I believe his reputation is going to take a hit in the short term. This was Ballmer’s big first play as CEO of Microsoft and it just looks a bit odd for him to reverse course on such an enormous strategic move.

Now, Microsoft needs to figure out other ways “scale” and go after Google in the online advertising market. Maybe Microsoft will try to cut a deal with AOL or MySpace?

2. What is Yahoo’s next move?
While I admire Yahoo’s toughness and determination to fight off the giant from Redmond, Jerry Yang & Co. have a lot of explaining to do. They just turned down a very handsome offer for their company. Many shareholders are going to be pissed and sell off the stock–while others are likley to launch a raft of lawsuits against Yahoo. My hunch is Yahoo plummets to the low $20s tomorrow morning. (It was around $19 before Microsoft made its $31 offer.)

The only reason it won’t fall further is because Yahoo keeps threatening to outsource part of its search traffic to Google. That could provide a short-term financial boost to Yahoo but it’s a losing long-term strategy as their share of search traffic would continue to decline, and it might even accelerate after such an arrangement. It also may never amount to much because regulators are likely to prevent the companies from cutting a substantial deal.

It will be interesting to see if Yahoo continues its merger talks with AOL, News Corp. or other partners. My hunch is that while they might, nothing is likely to come from it. For Yahoo, the merger talks seemed like more of a manufactured diversion or knee-jerk reaction than a well-considered move of true strategic intent.

So if Yahoo can’t or doesn’t pursue a significant deal with Google, and it doesn’t merge with another company, that still leaves the $44 billion question: What is Jerry Yang & Co. going to do to give Yahoo a better shot at remaining competitive ande lift its slumping stock?

Ball’s in your court, Jerry. Sometimes it’s dangerous to get what you wish for. Good luck.

Digital Dish on the Microsoft-Yahoo Melodrama

April 12, 2008

The Microsoft-Yahoo merger melodrama makes “As the World Turns” look like a PBS documentary.

Will AOL sneak in the back door and steal Yahoo? Why did Rupert Murdoch get back onto the dance floor? And what in the world is going on with Jerry Yang? BusinessWeek reporters Spencer Ante, Heather Green, Arik Hesseldahl and Catherine Holahan discuss the latest moves in this soap opera. Check out the video by clicking here.

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Merger Madness: Yahoo-Microsoft-AOL-FIM-???

April 10, 2008

OK, this is getting ridiculous. Today, the race to acquire Yahoo! has become perhaps the weirdest merger contest in the history of the technology industry.

Consider the day’s string of increasingly absurd leaks, er, I mean reports about Yahoo’s activities. First, this afternoon Yahoo! announced it would begin a limited two-week test of Google’s search technology on the U.S. version of Yahoo.com. Then, this evening at 10:35 pm EST, the Wall Street Journal reported that Yahoo and AOL were “closing in on a deal to combine their Internet operations.”

Not be to be outdone, the New York Times reported minutes later that “News Corp. is in talks with Microsoft about joining in its contested bid for Yahoo,” proposing a deal to join Yahoo, Microsoft’s MSN and News Corp’s Fox Interactive Media division, home of the MySpace social network. (If the story wasn’t penned by the usually reliable Andrew Sorkin, it would be laughable.)

Here’s my take: Yahoo is getting increasingly desperate. After Steve Ballmer issued a three-week ultimatum to Yahoo on Sunday April 5, Yahoo realized its needed to break out all the stops to either a) get a sweetened offer from Microsoft or b) strike a deal of comparable value that avoids getting co-opted by the Evil Empire in Redmond.

The announcement to outsource a miniscule amount of its search inventory smacked of last-minute desperation. (I like Silicon Alley Insider but I totally disagree with Henry Blodget that this was a “brilliant move.”) Even if the test improved the effectiveness of Yahoo’s search results (which is no slam dunk), there’s no guarantee Yahoo would outsource enough of its inventory to produce a material return. In its press release Yahoo went out of its way to stress the transient nature of the deal, saying “the testing does not necessarily mean that Yahoo! will join the AdSense for Search program or that any further commercial relationship with Google will result.”

The deal talks are a whole other matter. But let’s be clear: These are not superior proposals. Still, even if the deals are inferior (i.e. Yahoo would be much better off merging with Microsoft than the much smaller and weaker AOL, to say nothing of the deal’s antitrust issues), or just off-the-wall (adding MySpace to an already complicated Microsoft-Yahoo combination seems like a one-way express ticket to merger hell), they give Yahoo leverage in its talks with Microsoft. More suitors, however unattractive they are, create the impression of enhanced value (it would be interesting to know the valuation that these deals give to Yahoo). So give Jerry Yang & Co. credit for being shrewd enough to lure AOL and News Corp onto the dance floor.

I said in the beginning of this process that Microsoft would have to sweeten its offer. Lately, as Ballmer & Co. showed increasing signs of aggressiveness and the unimpressiveness of Yahoo’s future plans began to materialize, I began to question myself. But Yahoo’s shucking and jiving today makes me think it just might happen.

Obama: Master of the Web?

February 16, 2008

In this week’s Digital Dish, BusinessWeek reporters Steve Baker, Heather Green, Catherine Holahan and Spencer Ante discuss the merits of News Corp’s dalliance with Yahoo! and how the Internet is helping to change the art of presidential campaigning.

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Generation MySpace is Getting Fed Up

February 7, 2008

My post about social networks triggered a torrent of commentary and links. Well, here’s what I really think is going on after doing a bunch of reporting and thinking. The story by Spencer Ante and Catherine Holahan will be in this week’s issue of BusinessWeek, and it is called “Generation MySpace is Getting Fed Up.” And it just went up our Web site.

It’s Official: U.S. Social Networking Sites See Slow Down

January 29, 2008

I just got a hold of the ComScore numbers for U.S. social networking sites, and it ain’t pretty folks. (See an abridged version of the chart below this post.) After peaking in October of 2007 with 71.9 million users, MySpace, the leading social network, has seen its audience fall back to around 68.9 million unique visitors. December saw no growth over November, though visitors were up 13% from last December.

More alarming are the engagement metrics. Since December 2006, when MySpace engagement peaked at about 234 minutes spent per visitor, time spent on the site has dropped consistently throughout the year. In December, time spent per visitor saw its biggest month-to-month drop, of about 8.5%, to 179 minutes per visitor per month, down from 196 minutes in November. That equates to a 24% year-over-year drop.

But the pain is not just a MySpace problem. It seems to be an industry-wide issue. The total audience of U.S. social networks seems to be stuck at a low-to-mid-single digit growth rate, while the engagment metrics are falling for just about everyone. Time spent on Bebo.com has been sliced in half over the last four months, while Friendster’s time spent has plummeted nearly 75% in the same time period. Overall, minutes spent per site fell 5% in December 2007 compared to the year-ago period.

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Even Web darling Facebook can’t buck the entire trend. The good news for Zuckerberg & Co. is that the company continues to grow its U.S. audience. In December, Facebook claimed abut 35 million visitors, almost double its year-ago audience of 19 million. The bad news is that Facebook’s engagement is down sequentially, and only up 13% year-over year.

So what does this all mean? For starters, slowing and/or decling growth will make it harder to generate sales and profit growth from these sites. That will put more pressure on the advertising programs to deliver results. Of course, they could offset the declines through overseas gains. But so far, advertisers have been leary of marketing on social networking sites outside of the U.S.

All eyes will be on the News Corp. earning announcement on Feb. 4 at 4pm. Then we’ll find out how the slowing growth has actually impacted the sales and profit potential of these sites. My hunch is that the numbers won’t be as rosy as the company would like.

Average Minutes per Visitor Dec-06 Jan-07 Feb-07     Oct-07 Nov-07 Dec-07
Total Internet : Total Audience  1,764.90 1,746.90 1,721.90     1,817.70 1,732.70 1,684.90
MYSPACE.COM 234.6 227.5 184.8     192.9 196 179.3
BEBO.COM 213.3 417 302.7     231.8 246.8 173.9
FACEBOOK.COM 150.4 170.2 199.9     195.6 189.7 169.4
HI5.COM 22.7 34 28.1     53.6 62.5 56.6
FRIENDSTER.COM 39.5 38.6 31.5     109.2 69.8 39.2
Windows Live Spaces 17.3 14.6 17.2     14 13.2 14.9
LINKEDIN.COM 8 6.7 5     8.7 9.9 7.1
                 
                 
Unique Visitors (000) Dec-06 Jan-07 Feb-07     Oct-07 Nov-07 Dec-07
Total Internet : Total Audience  174,199 175,559 175,653     182,206 182,362 183,619
MYSPACE.COM 60,887 61,524 64,443     71,982 68,746 68,905
FACEBOOK.COM 19,105 18,961 16,737     32,910 33,660 34,658
Windows Live Spaces 9,589 9,057 8,320     9,854 9,884 8,912
BEBO.COM 2,977 3,602 2,641     4,442 3,674 4,279
LINKEDIN.COM 872 1,122 1,211     2,782 2,784 2,868
HI5.COM 3,029 2,299 2,640     2,454 2,165 2,483
FRIENDSTER.COM 1,103 1,288 1,379     1,668 1,687 1,791

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Valley Boy: Part 1 of an Interview with VC Pioneer Thomas J. Perkins

January 17, 2008

Thomas J. Perkins is a Silicon Valley legend. In 1972, Perkins, a former Hewlett-Packard executive, and Eugene Kleiner, a founder of Fairchild Semiconductor, created one of America’s landmark venture capital firms, Kleiner, Perkins. The partnership made its mark with two blockbuster investments: Tandem Computers and Genentech, the first successful biotechnology company. As chairman of both companies, Perkins played a huge rule in developing each of these groundbreaking, multi-billion dollar businesses.

Today, Perkins is more well-known for his role in helping to expose the spying scandal at Hewlett-Packard, where he was a director of the company. I got to know Perkins when I interviewed him several times for my book. In November, Perkins dropped by the BusinessWeek office to plug his new memoir, Valley Boy. Although he is not actively investing today, Perkins was as forthright and insightful as ever, looking trim and dapper in a blue, peak-lapel suit.

In the first part of this two-part interview, Perkins discusses the state of venture capital, his views on various technologies, why Microsoft doesn’t scare him as much, and the future of Silicon Valley. (Yes, he think we’re seeing some signs of a bubble.) In the second part of our interview, which we’ll publish on Monday, Perkins offers his candid comments on Hewlett-Packard and how he helped to turn around the company.

Is Kleiner Perkins not funding Web 2.0 companies anymore? There was some discussion of that in the blogosphere recently, with valuations for Facebook and other Web 2.0 companies getting really, really high.
I’m not aware of that. A lot has been done but we haven’t made it an official policy. I love bubbles. We made a lot of money in bubbles.

Every time Google passes one of the century marks, 100 to 200 to 300, everybody said, “My god.” If you bought Google on the offering you would have made about 10 to 1. Is the market always right? No. Is it always wrong? No. You don’t get rich by betting against the market.

Is there too much venture capital floating around?
There’s always been too much money in venture capital. It doesn’t mean you can’t make too much money in venture capital.

What’s the worst investment you ever made?
There are so many. Hundreds of them. In all of these things if you put the risk up-front and use your initial money to try to reduce the risk, you won’t lose that much money. But one Google covers an awful lot of early stage losses. That’s just the way the business works. When you write the check you think it’s going to be a home run. You’d never knowingly say this one isn’t quite as good. If you think that, don’t write the check.

Speaking of Google, what do you make of all this talk about platforms?
I am on the board of News Corp. so I am delighted to see MySpace participate in this war. The growth is just incredible and the involvement everyone has with these platforms. Five years ago I never heard of Google. Now I use it constantly

Did Rupert Murdoch bring the MySpace acquisition to the News Corp board?
Yes. And he discussed it with me a little bit ahead of that. I was very enthusiastic about. He discussed another one with me, which I won’t mention, that I was unenthusiastic about. It was acquired by somebody else and it has fizzled. For a long time I was Rupert’s listening post in Silicon Valley.

Why were you enthusiastic about it? A lot of people thought he was kind of crazy.
Because of Google. And because these things can take off. I thought it was a good bet. The people were impressive.

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What do you think about this whole movement to open the wireless world?
The phone companies scare me. The size, the power, the investment. They have the customers. They’ve got everything except for the last quarter mile. So they’re tough but they don’t move very quickly. An agile group like Google can do pretty well.

Does Microsoft scare you?
Not as much as it used to. They are a great company. We’ve always used them as a partner and as a target. I think that will continue.

Will Kleiner Perkins be around another 30 years? Succession has always been a challenge.
We are in our 35th year. We are on the threshold of another fund next year, which I think will be number 13. So we’re doing pretty well. We’ve lost some partners, but never in an angry or competitive way. We’ve had more retirements than the competition. We have a very good management structure: Ray Lane, John Doerr and Brook Byers are the three managing general partners. They are all pretty comfortable in the saddle. None of them want to quit. And we’ve got some pretty interesting folks coming up behind them. I think it depends on the bets we make, rather than who is in the pipeline.

Are you still bullish on green technology?
Yeah, there’s so much momentum. There’s fresh technologies and new things to be done.

It’s not trendy?
Sure, it’s trendy but you can’t ignore trends.

Will the credit crunch affect Silicon Valley earnings? Anything to worry about there?
No. There’s far more than adequate capital, as we’ve said earlier. It’s always a good time to be in venture capital. If the markets come off a bit, the prices come down. You can’t look at the stock market and decide whether or not to invest in a startup venture. You have to totally ignore that. You have to assume sooner or later there will be a market for liquidity. After all, the growth of technology has been just about the only constant in our economy for a very long time.

Do all these proposed tax increases on venture capital concern you?
Yes. I would hope that there’s an adequate distinction between a venture capital fund, which has a very long time scale, and something that’s measured in months, as in the hedge fund world. And maybe the tax code has to recognize that.

Historically, Congress has been pretty good in understanding what venture capital has been all about. When I was chairman of the National Venture Capital Association I lobbied to reduce the capital gains to 20% from 28%. President Carter vetoed that. But [Congress] overrode the veto. So Congress understood the importance of venture capital. I used to say venture capital was like a pilot light. But now it’s like a roaring glass furnace.

Do you worry about liquidity, in terms of how companies can sell out
If you have a good business there is always liquidity. The value has to be there. It has to be a decent business. It used to be in earnings per share, and now it’s in market share or growth rate. It can’t be smoke and mirrors.

Doesn’t that sound a little bit like the thinking of the bust?
Yeah but we can’t ignore that. It’s value. If you’re like us and get in on the ground floor, it’s always OK.

Where would you be if you were just getting into the Valley today?
Always as an entrepreneur. Never as a venture capitalist. My advice: You can go to Wall Street and get in on the ground floor of the next scandal. And there will be one. You can become a venture capitalist, and you might do alright. But if you really want to have some fun, make an contribution, and maybe make money, you become an entrepreneur. It’s a buyer’s market for entrepreneurs. There is so much venture capital out there. As I said in my book, money is the least differentiated of all commodities. And venture capitalists are in the business of selling money.

Do you sense that Silicon Valley is doing well today?
It’s better. The Valley is a meritocracy. It’s taken for granted. But it is a true meritocracy But it’s tough, too. An entrepreneur can fail and still get backing for the next deal, if we think he failed for the right reasons. We have primarily invested around the Valley and now we are branching out into China and far afield.

Now that you are going overseas, how will globalization impact America as money starts going overseas?
It’s not our primary focus. It’s still experimental. We don’t know how it’s going to play out. We are moving carefully and deliberately. I am very optimistic about the Chinese-American relationship. Always have been. I’m not concerned about co-habiting with the enemy or anything like that.

Do you think about investments differently there?
Oh yes. Historically, we never went very far from Silicon Valley because we couldn’t drive there and check on [the investments]. China is quite far away but we have a partner who commutes to China every couple weeks. We don’t know the [Chinese] as well but they come to us as well. There’s a lot of interaction. We think we’re doing it in a cautious careful way.

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