Google Deal Bails Out MySpace

Outside of mergers and acquisitions, there are big deals and then there
are $900 million deals.

Google’s deal with Viacom on Monday to syndicate MTV content over its AdSense network was a big deal.

Google’s deal with News Corp. to provide search and display
advertising to MySpace users for the next three years and nine months
was blockbuster.

It solves what were becoming serious monetization problems for
MySpace and ships a truckload of feather pillows to Google to pad its
AdSense revenue, a crucial part of its overall profits.

“It’s a good deal,” JupiterKagan analyst David Card told
internetnews.com.

“Combining MySpace’s big audience, fanatical, heavy users and
Google’s leading paid search network makes perfectly good sense.”

MySpace had over 45 million unique visitors in June, according to
Nielsen//NetRatings. That’s a lot of clicks.

News Corp. bought Intermix Media and its MySpace
property last year and promptly watched its popularity explode.

In July, Hitwise named the site the most popular one in the U.S.

But until Monday, News Corp. had still not found a way to turn that
popularity into a cash return on its $580M investment.

The challenge was that, though Internet advertising revenues went up 30 percent in 2005, their MySpace product wasn’t rising with the tide.

That’s because sponsored search results and contextual ads drove the
growth, not the type of banner advertising MySpace sells on its user
profiles.

Banner advertising can be lucrative. It works for Yahoo.

But that’s
because Yahoo sells to blue chip brand advertisers, the kind that
refuse to put pictures of their products on MySpace profiles for fear
that consumers will get the wrong impression.

User-generated content is too unpredictable for brand managers,
Forrester Research Analyst Brian Haven told internetnews.com.

“If I’ve got a tried-and-true brand that’s been around for decades, I
don’t want to find it hanging out with some video of a kid jumping
off his roof and hurting himself,” Haven said.

So there was MySpace, bubbling over with 100 million user profiles
and growing market share in the social networking space: a clear
success that wasn’t.

That is, until the Google deal, which promised an initial $900
million return on News Corp.’s $580 million investment.

Suddenly, sponsored search results and contextual ads are a crucial
MySpace ingredient.

“There’s a lot of bad advertising inventory on MySpace,” Card said.
“Working with ad network is the easiest way to short cut that problem.”

Of course, transactional advertising has its limitations.

Flickr, a popular social network built around photo sharing, decided
to stop placing contextual ads on its user profiles after an animal
rights activist complained about fur coat ads next to her protest
photos of seal hunters in Newfoundland.

Card said he also maintained some skepticism as to whether MySpace
users are the best audience for contextual advertising.

“If all you’re doing is talking about parties and sharing pictures of
each other various stages of undress, it’s not clear that there’s a
whole lot of transaction-oriented ads that are going to catch your eye.”

Still, despite those challenges, Card feels comfortable with Google’s
$900 million bet. Google does, too.

CEO Eric Schmidt told a conference call of analysts and journalists
as much on Monday.

“We think it’s important that we move Google to where the users are,
and the users are moving to user-generated content and in particular
the sites of Fox Interactive.”

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