MySpace: A Playbook for Beating Facebook

CEO Chris DeWolfe outlines his strategy for expanding profits, luring advertisers with "hyper-targeting," and keeping MySpace's U.S. edge over rival Facebook

Hunched over a small conference table, MySpace CEO Chris DeWolfe is in full spin mode. MySpace, which DeWolfe co-founded before selling it to News Corp. (NWS), has been getting a lot of bad press of late. Key executives are fleeing, the social network's chief rival, Facebook, is signing up millions more new users while MySpace is essentially flat, and rumors are flying that Google (GOOG) next year will pull out of—or dramatically cut—an advertising pact that provides nearly 40% of MySpace's revenues.

That's why DeWolfe, a resolutely earnest chap even in his trademark pointy-toed boots, is eager to talk about the new services being readied to help pump up MySpace's revenues. The year-old MySpace Music, he says, will soon allow its 18.1 million music customers to purchase concert tickets and band merchandise. MySpace is beefing up its game offerings, and will start selling "virtual" merchandise, including cupcakes people can send to friends and loved ones. "Too bad you're not here a month from now," says DeWolfe, 42.

Of late, DeWolfe and his team have been focusing more on making money than attracting millions of new users. As such, he says he "has been too focused on creating a profitable site" to worry about the recent spate of bad news. "I don't know Facebook's profitability," he adds. "But if I could have 300 million people using MySpace or be profitable, I would take profitability."

"A Huge Audience to Monetize"

DeWolfe says MySpace is making money. But News Corp. acknowledges that hefty spending on new features and an international expansion crimped earnings, which it doesn't break out. What's more, Wall Street has been largely unmoved by the MySpace story for the last year, when the company's revenues came up short and News Corp. failed to reach the $1 billion goal it had set for its Fox Interactive Media group, of which MySpace is by far the largest piece. Analysts figured FIM came in at closer to $900 million. And if Google pulls out of the advertising deal, MySpace could find it difficult to find another search engine willing to match the $250 million MySpace will receive this year from Google.

It's true that Facebook, with 236 million unique visitors worldwide in January, is now bigger than MySpace, which has 126 million globally. But MySpace maintains its edge on Facebook in the U.S., based on unique visitors and time spent on each site. As of January, each MySpace visitor spent an average 266 minutes on the site in a month, vs. 176 minutes on Facebook, according to the tracking firm ComScore Media Metrix. Marketers like that because it means people are hanging around long enough to see their ads. DeWolfe wants to keep visitors on MySpace even longer. His executives have been signing deals with TV producers to make more of the six-minute shows it needs to siphon off users from YouTube, and they are working on new video games to hike traffic on MySpace's game site.

Down the road, DeWolfe is planning advertisements for the mobile world where MySpace has more than 50 deals worldwide. Meanwhile, MySpace Music is experimenting "with five or six things," including an online radio service for its users, says its president, Courtney Holt. "Everything we do now is focused on generating revenue," he says. "We have this huge audience that we intend to monetize."

No Longer a Growth Story?

Keeping people on MySpace longer doesn't necessarily mean companies will buy more ads, of course. MySpace is acting more and more like a portal, a medium that tends to attract display ads—exactly the kind of online marketing that is taking a hit in these recessionary times. Sanford C. Bernstein senior analyst Michael Nathanson predicts that MySpace's ad sales will decline by 4% in the second half. "This is no longer the growth story that we were told," says Nathanson, who last year downgraded News Corp. to a hold partly because MySpace fell short of Rupert Murdoch's $1 billion revenue target.

To lure advertisers, DeWolfe & Co. are deploying the same bait many online media companies use: "hyper-targeted" ads. The company's president of sales and marketing, Jeff Berman, says local businesses can target MySpace users by Zip Code or by demographics—right down to "whether they are men [ages] 18 to 34 who like Nascar and live in a single county." Already, Berman says that about 70% of MySpace's orders include some form of hyper-targeting. And the company still gets huge traffic to its pages that have lured advertisers like Sony (SNE), State Farm, and McDonald's (MCD), including many that sponsor events. Toyota (TM), for instance, sponsors Toyota Tuesdays on MySpace Music, giving away free music downloads.

MySpace also offers advertisers one thing that Facebook doesn't: what it calls the "home-page takeover" when an advertiser pays to festoon MySpace's front door with promos. "When marketers have a big launch such as a movie," says Debra Aho Williamson, a senior analyst with the market research firm eMarketer, "a home-page takeover on MySpace is really popular."

The clock could be ticking for DeWolfe and co-founder Tom Anderson. Both men's contracts at News Corp. are up later this year, and speculation is rife in media and tech circles that they might not be renewed. DeWolfe says he has yet to start negotiating a new deal to replace a two-year contract said to be worth $15 million. He and Anderson, he says, would both like to keep running MySpace for Murdoch. On the other hand, DeWolfe acknowledges, "That's not my decision alone."

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