Big Numbers, Tough Audience

Murdoch bought it, Google has paid to be part of it, but will MySpace's user base spurn their advances? Google's announcement last week that it is to pay dollars 900m (pounds 475m) to exclusively provide search technology and SMS advertising services on social-networking site MySpace was granted the same kind of gravitas once reserved for venerable media brands such as Disney or Time Warner.

Jordan Rohan, a digital analyst at US investment bank RBC Capital Markets, calls the deal, which takes effect from the fourth quarter of 2006, 'a huge strategic victory for Google and an enormous financial windfall for Fox Interactive Media' - the Rupert Murdoch-owned subsidiary that acquired MySpace for dollars 580m (pounds 306m) last year.

The phenomenal growth of MySpace - which has done for user-generated content what eBay did for auctions and Friends Reunited for unhappy spouses - is key to the significance that observers are placing on the deal. At last count, it had 100m members (mostly teens and young adults), with 250,000 joining daily (see panel).

These attributes were sufficient to attract Murdoch, who is desperate to reinvent News Corp as a digital pioneer. But while MySpace may be a social phenomenon, analysts have been sceptical about whether it can ever generate sufficient returns from advertising to justify its price-tag.

Google's three-year tie-up with MySpace and Fox stablemates such as movie reviewer RottenTomatoes.com and sports site Scout.com is seen as vindicating Murdoch's strategy. News Corp president Peter Chernin says: 'In one fell swoop, we have paid off two-thirds of our internet investments. From now on, we are playing with house money.'

It is possible that Google's investment - which also gives it the right to sell any display ads not sold by Fox - will prove to have overvalued MySpace as an advertising vehicle. But by taking control of what Rohan calls 'the last big chunk of untamed internet traffic', Google has killed off the threat from Yahoo!, which was also keen to secure MySpace.

Ben Hart, joint managing director of interactive agency Glass, says the deal is important for two reasons. 'First, the media industry recognises that community or social networking needs to be monetised' - MySpace made just dollars 12m (pounds 6.3m) in ad revenue during June - 'and second, its audience can make or break brands very quickly.'

Matthew Tod, partner at digital media consultancy Logan Tod, adds: 'MySpace's significance to marketers is that it has brought rapid word of mouth into the heart of the marketing process. The site thrives on recommendations about what to buy and where to buy it. Plug a sophisticated keywords search tool into that world and it is a powerful proposition.'

While the prospect of combining a Google search with MySpace's dynamic audience looks compelling, there are concerns about the fit. Alex Burmaster, European internet analyst at Nielsen//NetRatings, says: 'The thing about MySpace that appealed to users was that it was distinct from traditional channels. But now News Corp and Google are involved, the big question is whether users will still feel the sense of community that first brought them there.'

This is a crucial point, since audiences have shown how quickly they can disperse to new destinations. 'The risk for News Corp if it makes the site too commercial is that people will move to a rival like Bebo or to a start-up,' says Irfon Watkins, whose company Coull creates software for user-generated content sites. 'The flexibility which made MySpace so appealing to Murdoch is also what makes it easy for users to move elsewhere.'

Hart says it will be important for News Corp to apply the same principles it does when targeting real-world youth communities. 'Brands have shown they can operate in the youth space as long as they aren't intrusive,' he explains. 'News Corp has kept the original (MySpace) management in place and that ought to help protect the integrity of the concept.'

Brand integrity is about functionality, as well as perception. 'Getting its tool bar into MySpace is a great PR story for Google, but there is a long way to go if it is to create contextual ads that fit the site's profile,' says Watkins. 'Whatever it does has to be subtle, because if this audience don't get relevant ad content, it will really annoy them.'

There is also the question of whether marketers are actually seeking search functionality from MySpace. MindShare Interaction digital chief Jo Lyle says: 'Google already has about 70% of the global search market, so the big car and finance brands are not short of places to reach audiences. The big challenge on MySpace is for brands such as Pepsi and Nike, which want to connect with this audience via content.'

News Corp might be happy to lose some of the feisty early adopters who built MySpace if in the process it is able to broaden the brand's demographic appeal and make it more compelling to mainstream advertisers.

Besides, the youth audience might run - but it can't hide. The news that Viacom is weighing up a bid for Bebo suggests that wherever they go, the commercial sector won't be far behind.

DATA FILE - MYSPACE
- MySpace attracted 30.2bn page views in the second quarter of 2006, according to internet research group ComScore. This represented a 385% increase on the same period last year and made it the most-visited web portal, in terms of total page views.

- In the UK, MySpace's unique audience was 3.16m in June, according to Nielsen//NetRatings. This group racked up 1.3bn page views and spent an average of 79 minutes on the site during the month.

- 23.6% (746,000) of the site's UK visitors in June used the search page.

- Since News Corp purchased MySpace, its UK audience has grown by 295%, compared with Bebo's 162%, suggesting that users have so far not found the new owner to be intrusive. The member community category as a whole has grown by only 12% in the same period.

- In April, 698,000 UK users visited both MySpace and rival Bebo. One in three visitors to Bebo went to MySpace, while a quarter of those who visited MySpace also logged on to Bebo.

- Bebo is the more popular of the two with teens: 54% of its audience is under 18, compared with 31% for MySpace. Only 28% of Bebo's audience is over 35, compared with 40% of MySpace's population. Bebo is also more popular with women: 56% of its audience is female, compared with 46% on MySpace.