Vodafone and MySpace Connect to Conquer

Both companies want to expand their user bases and stake a claim on the mobile Netbut don't expect the hook-up to remain exclusive

News Corp.'s deal with Vodafone to offer a mobile link to European users of MySpace seems to offer clear benefits to both companies. MySpace, a juggernaut in the U.S. social-networking world, hopes to replicate that success in Europe. Vodafone, like most wireless-service providers, hopes to generate badly needed extra revenue by encouraging people to use their mobile phones as a way to gain access to the Internet.

At the same time, the partnership is only a temporary marriage of convenience. BusinessWeek.com has learned that the agreement doesn't even cover a whole year—for good reason. Long term, MySpace will want access to all of Europe's mobile users, not just the roughly 14 million Vodafone (VOD) broadband customers who will be able to use the new service to blog, upload photos, and communicate with their MySpace friends via their cell phones. "It's a good first step," says Scott Horn, general manager for mobile software products at Microsoft (MSFT). "But eventually they're going to want to work with other people."

The deal, which Vodafone execs described in more detail Feb. 13 at the 3GSM Congress in Barcelona, will help MySpace win customers in Europe, where it's relatively weak. And it's part of Vodafone's strategy of forming partnerships with major Internet brands as a way of encouraging people to access the Net from their phones. In recent days, Vodafone has announced similar agreements with eBay (EBAY), Google's (GOOG) YouTube and Google Maps, and the instant messaging services of Microsoft Corp. and Yahoo! (YHOO). "Vodafone is leading the parade," in offering popular Internet services on handsets, Vodafone CEO Arun Sarin told reporters.

"Temporary Solution"

By working initially with Vodafone, MySpace can perfect the technology and get access to a big pool of customers. The mobile MySpace, to be rolled out in Britain later this year and then to other major European countries, will make it possible for MySpacers to access their pages on the go. That's currently difficult or impossible, even for mobile phones with broadband capability and Internet browsers.

Since cell phones are already a big part of most people's social lives, social networking on the go is a natural. "Web 2.0 is definitely something that will exploit mobility," Nokia CEO Olli-Pekka Kallasvuo told a small group of reporters at the 3GSM show.

Exclusive agreements like the Vodafone-MySpace partnership—similar to an agreement MySpace has with Cingular in the U.S.—make sense during the startup phase, says Paul Goode, senior analyst at market analyst m:Metrics in London. But the ultimate goal for Internet-based businesses is mobile Net access that functions as well as PC connections and doesn't depend on any one network operator. "The walled-garden approach is a temporary solution," says Goode.

Jostling for Position

MySpace, part of News Corp.'s (NWS) Fox Interactive Media, is nowhere near as powerful on the Continent as it is in the U.S. It's the market leader in Britain, but faces stiff competition from Google's Blogger and San Francisco-based BeBo, according to Nielsen/Net Ratings. In most of the rest of Europe MySpace trails Blogger, Microsoft's Windows Live, and a host of homegrown social-networking sites. A MySpace spokesman says, however, that the service is growing very quickly in markets such as Germany, France, and Italy, where the company has launched local-language versions.

Mobile Internet is a huge topic at 3GSM, which attracts some 60,000 industry people. But it's also clear that there's lots of work to do before surfing the Net on the go becomes as comfortable as doing so on a PC. More users need the right handsets, and mobile-phone companies must invest in their networks to handle the traffic.

Meanwhile, there's lots of jostling among handset makers like Nokia (NOK), network operators, and the likes of MySpace to shape the mobile Internet. Nokia, for example, has struck its own deals with Internet players such as Yahoo!'s Flickr photo-sharing site as a way of driving sales of smart phones.

Expect plenty of shifting alliances as mobile access evolves. "I think it needs to be driven by all of us," says Jonas Geust, a Nokia vice-president responsible for the company's multimedia-player phones.

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