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Why MySpace Is the Hot Place

By Steve Rosenbush The first thing Brian Carley does when he gets into his Manhattan office is log onto, a Web site where thousands of people have created their own home pages featuring photos, music, and more. The 27-year-old Web designer and musician, who lives in Montclair, N.J., sips his coffee and spends about 30 minutes clicking through the site.

He checks out the page for his band, The Moirai, scanning fans' comments. He clicks on the photos of folks who have left comments that he finds intriguing, zipping off to those users' MySpace sites, reading their blogs, or listening to their favorite tunes. He leaves notes on the home pages of friends, checks up on a former girlfriend or two, and pores over the stories of complete strangers.

Carley spends a total of about an hour a day on MySpace -- more than he does watching TV. "It's kind of like watching a train wreck," he says. "You can't look away."

MUSICAL CORE. Thanks to its addictive appeal, MySpace has become one of the hottest properties on the Web. Only 20 months old, it already has 14 million unique visitors a month, according to market researcher comScore Media Metrix in Chicago. That makes MySpace, more than 50%-owned by InterMix Media (MIX), far and away the most popular of a new breed of social-networking site, where people use home pages laden with blogs and message boards to create extended networks of friends and acquaintances.

Friendster, started three years ago and at one time the clear leader, has a mere 1 million unique monthly visitors. "We're crushing it," says MySpace Chief Executive Chris DeWolfe, 39. Friendster CEO Scott Sassa announced on May 25 that he's stepping down.

MySpace's draw? It's based on a core of music fans. DeWolfe's co-founder is Tom Anderson, a 29-year-old musician and entrepreneur, and from the beginning the site has catered to musicians. Bands can create their own home pages, with photos, tour dates, and as many as four songs -- all for free. Marquee names like Beck, the Black-Eyed Peas, and ex-Smashing Pumpkins leader Billy Corgan joined. That pulled in fans and their friends, who all found that MySpace offered loads of options that other sites lacked. Besides posting photos and personal information, users can add blogs, message boards, and music and video they made themselves.

ELBOWING IN. Now, MySpace has become something akin to the hippest bar in town, teeming with musicians, models, and fans. Members visit each others' sites, leaving a photo or two and often a request for a return visit. The result is huge, extended networks of people. One Moirai fan, who calls herself Krystle, posted a note on the band's site and mentioned it on her own, exposing the band to the nearly 400 people in her network. Another woman, who calls herself Tila Tequila, has a circle of 292,000 men and women, all of whom seem to adore the 24-year-old model with equal ardor.

The question is whether DeWolfe and Anderson can turn all of this cachet into cash. Hot bars, after all, come and go. The founders need to boost their revenues, which come largely from ads from companies ranging from Procter & Gamble (PG) to NBC (GE) while maintaining MySpace's hippness. Complicating matters is rising competition from Yahoo! (YHOO), Microsoft (MSFT), and America Online (TWX), all of which are moving into social networking.

It's a fine balancing act, but MySpace's founders make no secret of their ambitions. "From the very start, we set out to create the next major portal, the next major destination on the Web," DeWolfe says.

"ONE DIGITAL PROFILE." The big portals intend to put MySpace in its place well before it can threaten them. Yahoo, which has 112 million registered users, is testing a social-networking site called Yahoo! 360 that it plans to launch this fall. Microsoft's MSN launched a similar site, dubbed Spaces, in April -- and signed up 10 million users in a matter of weeks.

"MySpace is fascinating," says Microsoft's Blake Irving, corporate vice-president for MSN communications and member platform. But he thinks MSN has tremendous advantages: It already has 88 million registered users, and it will offer them e-mail, instant messaging, and social networking all in one place. "I think people will want one digital profile that says: 'This is my digital self,'" says Irving.

Whichever company wins, it's clear that social networking is having a big impact. Indeed, it's evolving into a new form of media. These networks are part entertainment -- a substitute for TV. Carley and others choose to share in the drama of other peoples' lives on the Net rather than watching the tube.

ON-SITE DEBUTS. Online social networks are also part communications tool, like e-mail or the phone. Julie Herendeen, vice-president for network products at Yahoo, says the company's research shows that most people aren't that interested in using social-networking sites to meet new people. Instead they want to keep in touch with people they already know.

Either way, these sites have the potential to become the next major medium for advertisers. MySpace already is developing into a powerful way to reach 16- to 30-year-old consumers, one of the most sought-after and elusive demographic segments. The outfit has created ad campaigns for Target (TGT) and Procter & Gamble. NBC's new comedy show, The Office, made its debut on MySpace. So did Showtime Network's (VIA) Fat Actress.

And Interscope Geffen A&M Records (V) has launched new albums from Nine Inch Nails, Beck, and Queens of the Stone Age on the site. "They were the biggest debuts in each band's history," says Courtney Holt, director for new media at the record label. "We take MySpace very seriously."

PERSONALITIES SHINE. So powerful is the site as a means to connect with fans that some musicians hope MySpace and sites like it could remake their industry. Record labels have been essential because they know how to market and promote their artists. But these days, why should bands bother with a label? They can post their tour dates on MySpace, put up music samples, and correspond via e-mail or message boards directly with their fans. "MySpace throws a wrench in all that -- and that makes it dangerous," says Corgan.

That's one reason to think, despite the challenges MySpace faces, there's good reason to think it can survive -- and thrive. It's not clear that MySpace users will be swayed by Microsoft's vision of integrating e-mail and instant messaging platforms into a social-networking site. "I can see why some people would find that appealing, but it wouldn't matter that much to me," Carley says.

MySpace has flourished because it has given members the tools to customize their Web sites. That has allowed its users' personalities to come through. Friendster, with its smiley-face logo, has focused on fostering safety and trust. MySpace has let its members do whatever they want.

"The key to MySpace is that it's controlled by the user. Friendster is a much more controlled environment," says Joel Bartlett, an organizer for People for the Ethical Treatment of Animals. He says his group has a presence on MySpace, Friendster, and blogging platforms LiveJournal and Xanga. Its MySpace site has created a network of 13,000 people, while the other sites have attracted just 3,000 each.

"ALL ABOUT ENERGY." Although it can't match Microsoft's cash, MySpace has access to capital and technology because it's over 50%-owned by Intermix, a publicly traded tech company. And if it needs to raise more cash to fund product development, it has the option of going public or selling to a larger company, such as Google (GOOG), the only big portal that doesn't have a social-networking feature of its own. MySpace won't disclose its financial details, but analysts believe it's profitable. That's a crucial hurdle on the way toward a public offering.

MySpace's future ultimately rides on intangibles that transcend technology and focus groups. "The world is all about energy. If you can generate energy, it will ultimately translate into money," Corgan says. Friendster appeared to have the energy, but whatever it had faded. And for all their size and power, Yahoo and MSN may have a tough time generating that kind of force as they roll out their social-networking sites.

Right now, MySpace is generating enough juice to light up the Internet. If it can sustain that momentum, it could emerge as one of the most important Internet startups in years. Rosenbush is a senior writer for BusinessWeek Online in New York

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