When media tycoon Rupert Murdoch surveys his empire, something looks amiss. His Internet crown jewel, MySpace, boasts 110 million users—more than double the tally for archrival Facebook. Yet Facebook is on the verge of taking a chunk of cash that could give it a value of $15 billion, while shares of Murdoch's News Corp. (NWS) family of businesses have barely budged this year, despite rapid online growth.
What gives? "It tells you that News Corp. is totally underpriced," Murdoch, the company's chief executive, said of his company's share performance at a Web industry conference Oct. 17. Earlier in the day, Mark Zuckerberg, CEO of social networking site Facebook, told attendees that the company has nearly wrapped up financing that could value it at $15 billion (BusinessWeek.com, 10/17/07). This year shares of News Corp., which closed Oct. 17 at $23.64, are up just 1.4%, giving the company a market value of $69.61 billion—just five times Facebook's potential value, on nearly 200 times its revenue.
Murdoch and MySpace co-founder and CEO Chris DeWolfe have a plan to change the parent company's online fortunes: They'll make it easier for outside software developers to build MySpace tools and then let them share in resulting ad sales. MySpace is following in the footsteps of Facebook, Apple (AAPL), and other tech trailblazers in harnessing the legions of programmers, many of them independent or affiliated with smaller companies, jonesing to craft the next big consumer application, be it related to games, photos, music, or other interests. "We are opening our platform within the next couple of months to all developers," DeWolfe said at the Web 2.0 conference put on by O'Reilly Media in San Francisco.
For News Corp., the aim is to generate revenue by courting new users and making current ones more active by giving them more to do on the site. Within the next two weeks, MySpace intends to publish a catalog of third-party programs that users can easily find and add to their pages. By December, MySpace plans to test with 2 million members a special portion of the site for installing applications that developers create using tools supplied by MySpace. Most of that software will eventually end up on the broader site, DeWolfe said.
Perhaps most important, MySpace will give outside developers a special page on which they can sell ads. That's big news for developers, whose businesses rest on the booming market for add-on "widget" software for Facebook, MySpace, and other social networks. Facebook's growth has boomed since May, when it opened up. Max Levchin, founder and CEO of widget software maker Slide, calls the ability to sell ads "the single most exciting opportunity for widget makers on MySpace," in an interview before News Corp.'s announcement. "Facebook's innovation was that you don't need a relationship with them to share revenue with them," he says. "They didn't invent the concept of widgets. But they got millions of people to stick around, and they actually made real money. Developers have a financial incentive to play."
Best of Both Worlds
Now they will on MySpace, too. But what took so long? MySpace gave many widget makers their start, but it has been so focused on adding users that courting developers wasn't a priority, Levchin says. "During an era of super-torrential growth, there wasn't enough time to build a platform," he says. "They were making sure things didn't fall apart." Pressure to match Facebook is also a factor, he adds. "There's no doubt that MySpace feels pressure to play in the same game."
News Corp. is taking other steps to stay Web-savvy. DeWolfe said he and MySpace co-founder Tom Anderson just inked a deal with Murdoch to stay on board another two years. And MySpace will open an office in San Francisco's startup-laden South of Market district to tap the region's vein of talented software engineers. Combined with its Los Angeles headquarters' proximity to Hollywood and the record labels, "we think we have the best of both worlds," DeWolfe said.
MySpace will probably rake in three-quarters of the estimated $1 billion in revenue News Corp.'s Fox Interactive Media unit is expected to book in 2008, mostly by selling ads it shows to its huge assemblage of users. That's just a fraction of the newspaper and television conglomerate's total sales. But Web properties are increasingly vital to big media's growth prospects. Toting up estimates for News Corp., Disney (DIS), Time Warner (TWX), CBS (CBS), and Viacom (VIA), online divisions will account for 30% of revenue growth in 2008, up from 15% in 2007, according to Goldman Sachs (GS).
The Widget Card
Bringing developers into the MySpace revenue stream could help the site expand. Once users have tired of online reenactments of their offline relationships—be it through finding friends, sending messages, flirting—they need more things to stay engaged with a social network. That's where widgets come in. And as they add more features, tools, and games, sites also create more space for selling ads, increasing traffic, and rewarding developers with a slice of the ad sales generated by widgets.
Facebook has played that card to a T. Its membership has surged (BusinessWeek.com, 8/6/07), recently reaching 47 million, since it began allowing outside software developers to add programs. And Zuckerberg indicated he may move further onto MySpace's turf, adding features that make it easier for bands and other groups to promote themselves on Facebook.
Facebook's incursions aren't lost on MySpace. "It's pretty cool," Murdoch said of Facebook. But "it's more like a utility, whereas we're a more interconnected media. It's not just looking up friends." Murdoch will need to continue making more out of MySpace to ensure News Corp. parlays the social network's considerable breadth into market value.