Murdoch's New Startup Incubator

The SlingShot Labs venture is designed to spawn Internet startups for News Corp. and also likely to help MySpace compete with Facebook

With 110 million members and $800 million in annual revenue, MySpace has become a growth engine for Rupert Murdoch's News Corp. (NWS) media empire. Now the media mogul wants to turn the online social network into a breeding ground for his next success story.

MySpace plans to announce as soon as Feb. 13 that it has formed a business incubator called SlingShot Labs to spawn Internet startups for News Corp.'s growing empire of Web properties, which now includes The Wall Street Journal's as well as the video game site IGN. Murdoch and MySpace CEO Chris DeWolfe plan to be closely involved in the venture, which News Corp. has seeded with $15 million to hire roughly 40 employees, mostly software developers, say people with knowledge of the plans.

The venture is being launched nearly a half-year after archrival Facebook announced a $10 million fund to invest in software companies that build applications for its social network. Indeed, most of of MySpace's rank and file are deep into projects designed to reignite the site's growth after a year that saw Facebook's membership soar. MySpace's current to-do list includes building an ecosystem of software developers (, 10/18/07) who can create add-on "widget" applications for the site; redesigning MySpace's profile pages to give members more control over who sees what; expanding the selection of music on the site; and expanding its efforts in Russia, India, and Turkey.

MySpace CEO: "My Baby, My Idea"

With all that swirling about, SlingShot is seen as a way for MySpace to keep looking down the online media road and be able to pounce quickly on opportunities, says DeWolfe as he downs cappuccinos and a Red Bull during a recent interview at a San Francisco restaurant.

Two longtime MySpace lieutenants, Josh Berman and Colin Digiaro, will run SlingShot as co-presidents. SlingShot employees—10 new hires have signed on so far—will receive equity in the startups. The incubator also satisfies a craving of DeWolfe's. "This is my baby, my idea, and something I've wanted to do for a long time," he says. (Along with MySpace co-founder Tom Anderson, he signed a new two-year contract worth millions in October.)

Outsiders also see SlingShot as a way for MySpace to tap a vein of software developers who can help the site build more compelling features to compete with Facebook and thereby capture a greater share of social-media ad spending. Worldwide, advertisers are expected to lay out $2.15 billion worth of marketing on social networks in 2008, surging 75% from last year's $1.23 billion, according to research firm eMarketer. At a time when advertisers are still experimenting to find the right business models for marketing on social networks, it's sensible for MySpace to nurture companies that can expand the possibilities, says Debra Aho Williamson, a senior analyst at eMarketer.

Traffic Numbers Stagnant

Konstantin Guericke, CEO of Jaxtr, a software company that created an application to link users' social-network profiles to their cell-phone numbers, says SlingShot could help MySpace recruit developers who can make its site more engaging. "Clearly they got it right with profiles and self-expression," he says. But MySpace "totally missed the boat" on building features that let teenagers use add-on software to track one another's activity online. "MySpace has always been more of a media company, and Facebook has been more of a software company," says Guericke. "I don't know how well [SlingShot is] going to work, but it's a good thing for them to try."

To be sure, MySpace is still one of the Internet's most popular hangouts. The site attracted nearly 69 million unique visitors in December—nearly double Facebook's 34.7 million—according to market researcher ComScore (SCOR), and MySpace says it's adding 300,000 users a day. Sales at Fox Interactive Media, the News Corp. unit that contains MySpace, surged 87% in the final quarter of 2007, primarily because of ads on MySpace.

Yet the December traffic number was down from nearly 72 million unique visitors in October, and the amount of time users spend on MySpace has fallen as well. (Facebook's traffic, by comparison, grew from 33 million in October.) There are also signs that ads on social networks are becoming less effective (, 2/4/08). And investors in Internet companies are concerned about the overall health of the online advertising market as the U.S. economy worsens. "You're going to see it slow down," says David Siminoff, a general partner at venture capital firm Venrock Associates.

In the Works

To keep growing, MySpace is recruiting users and advertisers in new markets. Offices in Beijing, Mumbai, Moscow, and Istanbul are slated to open by April. Closer to home, MySpace's six-month-old Seattle office has grown to 50 developers, including several engineers poached from Microsoft (MSFT). That could give the company more mojo in the software world.

A redesign of the MySpace site due by May aims to expand the site's appeal by giving users the ability to categorize their friends, close friends, family members, and work buddies so they can specify which groups can see which portions of their profiles. Also in the works are applications to let users read Google (GOOG) Gmail messages and perhaps even receive updates from their Facebook accounts while on MySpace.

DeWolfe & Co. won't get specific about what projects they're incubating with SlingShot but say they'll focus mostly on social networking, including software designed to work with Facebook's site. Even though the venture is in Santa Monica, Calif.—near MySpace's offices in Beverly Hills, not Silicon Valley—SlingShot co-President Digiaro says he wants to create the feel of an Internet startup. "We want the open environment and high ceilings and cement floors," he says.

Before it's here, it's on the Bloomberg Terminal.