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MySpace vs. Facebook: The Fight Isn't Over

If the turn of a new year is a time for resolutions, then MySpace, part of News Corp (NWS), may have chosen one of the most traditional: losing weight. According to a Wall Street Journal report, the once-leading social network will cut from a third to a half of its workforce of 1,100.

Compare that to the news of Goldman Sachs (GS) investing $500 million in Facebook, giving the latter a $50 billion market value. Where did the one go right and the other go wrong? It wasn't technology so much as one smart move--focusing on students-- by Facebook. But that clever strategy could eventually backfire. And a different trend could favor MySpace and make it a natural acquisition for Google (GOOG).

Just a few years ago, MySpace was the dominant name in social networking. Kids, adults, artists, musicians, companies -- many people and organizations went to the site to connect. But there was no coherence base for growing the audience. Furthermore, because users could heavily customize the look of their own profiles, there was no design coherence, with much off-putting and visually painful pages.

Facebook did something quite clever and almost inadvertent, given its genesis in a university setting. It built audience first among college students at an expanding number of educational institutions. Next, it moved to high schools, trading on the widespread interest of younger people to take part in what seems reserved for those who are older. Think of it as immediately overcoming an excluding barrier without having to go through a rite of passage.

Only after high school and college students were will in place did Facebook open doors to adults. By that time, the company could bet on the dynamic of adults adopting a youth culture, as the world has seen time and again in clothing, music, and language.

Interestingly, although the difference in approaches has favored Facebook in the short run, it may not over time. Although only anecdotal evidence, I've already begun hearing high school and college students referring to Facebook as an old and established entity that no longer has a sense of cool. In other words, for all of the growth that Facebook has seen, it may have become so popular with parents as to potentially disaffect younger generations, who compose the exact audience that could enable a challenger.

In addition, MySpace still has some interesting opportunities. Look at this (AMZN) chart comparing MySpace and Facebook. Instead of making the usual point that MySpace's audience is shrinking while that of Facebook expands, it looks at what percentage of visits come from search engines:

Increasingly, Facebook is an enormous but self-contained world. You become part of its user ecosystem, but it offers little reason to draw in people from the outside who are looking for something.

MySpace, on the other hand, appears to have become an answer source for people's questions or interests. The site has the greater capacity to organically match people with niche interests. In other words, the company's strategy to become a hub to discover music, entertainment, and games seems to be working, even if not quickly enough. Adding additional niche categories should be possible.

Among its current strategic needs, here are two important tasks for Google:

  1. Keep Facebook from taking more people, traffic, and advertising revenue.
  2. Develop a local marketing and shopping presence without Groupon.
If Google ever wanted its own social network that would compete with Facebook and mesh with its search operations while providing a potential opening for local search and marketing, MySpace could be the kernel. And layoffs might only drive the price down, letting Google get the asset for little.


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