Making Social Media Pay Off

Last week, my colleague Steven Baker wrote a cover story with the provocative question: What’s a Friend Worth?

The latest Internet dream was that social networks such as Facebook and MySpace, with all of their tons of user data, would create an advertising gold mine. But the answer, so far, is that despite the huge and growing amount of interest in social networks, your social friends are not worth that much. People are just not in a buying mood on social networks so they don’t click on those ads that often at all.

The good news is that that social networks are coming to grips with this hard realization and developing new ways to make money from all those friends–beyond advertising. The recent $200 million investment that Facebook received from Russian investment firm, Digital Sky Technologies, which says it has developed several profitable social networks, was driven in some part by the company’s expertise in generating non-advertising revenue.

Check out the rest of this post on BusinessWeek’s TechBeat blog, in which I talk about the new emerging business models of social media.

It’s Official: Owen Van Natta Named MySpace CEO

Notice how Jonathan Miller stressed that Van Natta will “guide MySpace through its next phase of growth.”

Seems to jive with previous post suggesting that MySpace may be shifting its strategy to emphasize growth over profit.

Here’s the release:

News Corporation Names Owen Van Natta Chief Executive Officer of MySpace
______________________

Los Angeles, CA, April 24, 2009 – News Corporation today announced the appointment of Owen Van Natta to the role of MySpace Chief Executive Officer effective immediately. Mr. Van Natta will be based in Los Angeles and report directly to Jonathan Miller, News Corporation’s CEO of Digital Media and Chief Digital Officer.

A highly-regarded digital executive, Mr. Van Natta, 39, previously served as Chief Revenue Officer and Vice President of Operations for Facebook, where he helped negotiate Facebook’s $240 million investment from Microsoft. Earlier, he served as Vice President of Worldwide Business and Corporate Development for Amazon.com. Most recently, he was the CEO of Playlist, Inc., an online music company.

“Owen combines a deep understanding of social networking, a keen business sense and the operational experience to guide MySpace through its next phase of growth. I’m confident his leadership will be an invaluable asset,” said Mr. Miller. “I plan to work closely with Owen to shape our long-term vision around this vibrant community that already attracts more than 130 million users worldwide.”

“I’m thrilled to have the privilege to pilot MySpace in what is sure to be an incredibly exciting and rewarding next chapter for the business,” said Mr. Van Natta. “I feel honored to build upon the immeasurable achievements of the MySpace founders and look forward to working with Jon and the MySpace team to meet the challenges and make the most of the opportunities before us.”

While serving as Vice President of Operations and Chief Revenue Officer for Facebook, Van Natta focused on revenue operations, business development, strategic partnerships and technical operations. As Vice President of Worldwide Business and Corporate Development at Amazon.com, he managed global marketing programs and strategic partnerships. He was also part of the founding team of A9.com, the Amazon.com search company, and was responsible for site operations and sponsored-link advertising. Owen earned a B.A. from the University of California at Santa Cruz.

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

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.

Social Ad Summit: Advertising on Social Networks

On Monday September 15 I will be moderating a morning panel at the Social Ad Summit in downtown New York with execs from MySpace, hi5, Classmates.com, Meebo and MyYearbook.com. It’s an invite-only conference but if any Creative Capital readers are going to be there please let me know. Maybe we can connect.

Says the conference explainer: “The Social Ad Summit is a full day, invite-only, conference held in New York City, focused on strategic issues driving the growth of advertising in social media, primarily on social platforms. The event is specifically targeted toward leading media, advertising and social technology executives and is designed to promote knowledge sharing and encourage networking.”

My panel goes from 9:00am to 9:45am and is titled: Social Network Advertising

We’ll talk about the current advertising strategies of leading social networks and their attempts to create a successful business model. If you can think of any interesting questions to ask please email/twitter me or post them in the comment section. Here are the folks on the panel:

Mike Trigg, Director of Marketing, hi5
William Alena, Vice President of Advertising/Business Development, MyYearbook.com
Martin Green, COO, Meebo
Jeremy Helfand, Executive Vice President, Classmates.com
Suzanne Skop, VP of Sales, Northeast, myspace.com

New June ComScore Numbers Shows Facebook Still Has the Mojo

I just got a first look at the June ComScore numbers for the top social networking Web sites in the U.S.

The big story is that Facebook saw a nice jump in unique visitors and it continues to grow faster than MySpace and the overall market.

In June, Facebook claimed 37.4 million unique visitors, up from 35.6 million in May. Year over year, Facebook saw its uniques rise 34%, up from 27.9 million last June. By contrast, the total number of Americans visiting social networking sites grew 6% over the previous June to 189.9 million. Meanwhile, MySpace only saw 3% annual growth in its visitors, rising to 72.8 million from 70.5 million.

Clearly, MySpace is still the leader in terms of the U.S. social networking audience. Even if Facebook continues to outpace MySpace at these growth rates, Rupert Murdoch’s prize acquisition is in no danger of losing its billing as the largest U.S. social network any time in the near future. Even so, Facebook clearly has the mojo, and continues to nip at it heels.

The engagement numbers are sort of a mixed bag. MySpace, Facebook, and Orkut are clearly grabbing the lion’s share of attention in the U.S. social networking space. In the second quarter, MySpace saw a nice jump of 15% to 677 minutes spent on the site compared to the year-ago quarter. However, engagement dropped 2% compared to the first three months. As for Facebook, the average minutes per visitor fell 8% in the second quarter to 527 minutes, compared to the year-ago quarter. However, engagement increased 5% over the first quarter of 2008. Bottom line: people continue to spend a lot of their time on these sites.

I asked ComScore senior manager Andrew Lipsman what he made of Facebook’s gains. He said it’s hard to pinpoint exactly, but it’s probably a seasonal bump enjoyed by leisure-type Web sites. “Leisure–oriented sites (gaming, social networking) sometimes have a tendency to see seasonal gains in the summer when people have more leisure time,” wrote the 28-year-old Lipsman. “Anecdotally, it does seem as though my contemporaries have very recently been flooding onto the site. I wonder if there is any increased word-of-mouth effect due to people being out more during the summer? Just a guess, but I suppose it’s possible.”

I have to agree with him on the second point. Since joining Facebook more than a year ago, I have seen a steady increase in my friends. But over the last few months, my friend requests have seemed to spike. I’m getting a lot of friend requests from old high school friends I haven’t spoken to or seen in many years.

This seems to show that Facebook is following the traditional adoption curve. The innovators and early adopter crowd have already joined the party. Now, Facebook seems to be attracting the early majority crowd—the folks who are not the first on the block with the slick new gadget but over time they tend to come around and adopt whatever the early adopters deem cool or useful.

Final notes: Among the other top social networking sites, LinkedIn and Orkut are seeing the highest growth rates. LinkedIn more than doubled its U.S. audience, hitting 4.1 million users in June, up from 1.7 million the previous June. And Orkut, Google’s social networking play, also doubled in size, reaching 1.2 million users, up from 588 million the previous June.

Micro-Hoo: The End of Tech’s Soap Opera? Or the Beginning of the End?

In this week’s broadcast of the Digital Dish, BusinessWeek reporters Spencer Ante, Heather Green, Arik Hesseldahl and Catherine Holahan wonder if the Microsoft/Yahoo dance is really over, and then size up Microsoft vs. Google and News Corp.’s slumping Internet revenues.

Not to trumpet our horn too loudly, but we warned you about MySpace twice over the last six months. In fact, last November we first raised red flags about MySpace and how the pressure was on Rupert Murdoch to turn his prize quarry into a profit machine.

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

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

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-???

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.

Generation MySpace is Getting Fed Up

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.