by Natalie Pace, CEO and founder, NataliePace.com™
NataliePace.com's 2006 Company of the Year: MySpace
NataliePace.com's 2006 Executives of the Year:
Chris DeWolfe, CEO, MySpace and
Tom Anderson, President, MySpace
Editor's Note: This article first appeared in the January 2006 NataliePace.com ezine. It was also published on Forbes.com.
In 2006, MySpace surpassed Google in a number of key online metrix, and was ranked as the number three web site, in terms of page views and user time online, just behind Yahoo and MSN (source: comScore Media Metrix). With 45,579,475 registered users (as of 12.28.2005), and increasing at 160,000 people per day, MySpace received 12.5 billion page views per month and popular culture and the digital lifestyle. All that in just two years of operations.
Nov-05: Unique Visitors (000), Total Pages Viewed (MM), Average Minutes Per Visitor
Total Internet Audience: 169,747, 454,480, 1,547.0
Yahoo! Sites 125,038, 43,345, 260.1
MSN-Microsoft Sites 115,526, 19,821, 182.3
Google Sites 90,889, 6,736, 30.6
MYSPACE.COM 26,684, 12,511, 78.0
Source: comScore Media Metrix
Audience: All Persons at U.S. Home/Work/College-University Locations
Numbers like that can launch a multi-billion dollar IPO, and indeed, in early 2005 it looked like MySpace's owners, Intermix Media, were positioning MySpace to be the Cinderella IPO of 2006. By September 30, 2005, however, in one of the most nimble, noncompetitive acquisitions ever, Fox Interactive Media, Inc., a wholly owned subsidiary of News Corporation, bagged MySpace (and its parent company, Intermix Media) for just $629 million (including the buy out of preferred shareholders and unvested stock options).
How does the Internet's hottest new property get scooped up for a song? Although MySpace is mixing it up with the giants on the Internet, it's parent company, Intermix, was slogging through a series of scandals in the summer of 2005. Indeed, when News Corporation came calling in May 2005, Intermix Media had just been slapped with a lawsuit for AdWare and SpyWare by Eliot Spitzer's office and the Intermix market capitalization had sunk to $137 million. In light of the lawsuit, lack of investor confidence and reduced cash position of Intermix, the News Corporation offer of $629 million was considered by many financial professionals at the time to be generous. According to Jim Moglia, Executive Managing Director, Harris Nesbitt, "Having a stable bidder at a price that was high for the time was a good deal."
Since the Fox Interactive, Inc. acquisition, MySpace, which was never named in the Adware/Spyware lawsuit, has continued to be on a tear, expanding its services, adding new users in the core advertising demographic of 16-34 year olds, and attracting those users to spend more time online.
Will MySpace be the Mother Lode Rupert Murdoch has been searching for to attract more investors to News Corp.? Will answering to the "man" kill the independent spirit that attracted teens and bands to MySpace in the first place? Can the co-founders of MySpace, who have taken the company from zero to 160 employees and from zero to 45 million registered users in just two years, hope to compete with experienced executives like Terry Semel (CEO, Yahoo!) and Eric Schmidt (CEO, Google)?
Read NataliePace.com's exclusive Q&A with co-founders, Chris DeWolfe and Tom Anderson, to discover how these two visionaries outmaneuvered the competition, survived two owners (Intermix and now News Corp.), created a lifestyle portal that MySpace users, quite frankly, couldn't live without in 2006. Peek into their plans to expand their revenue, reach and products.
Natalie Pace -- Your new owners at News Corp. have voiced a lot of respect for you and what you have achieved over the past two years. Ross Levinsohn, the President of Fox Interactive Media, is quoted as saying, "To ramp up that quickly with that kind of talent is pretty unique." Andrew Butcher, a spokesperson for News Corp., says that Rupert Murdoch is clearly very impressed. Is this a case of taking ten years of R&D to become an overnight sensation, or was it really that easy?
Chris DeWolfe - It's a little bit of both.
Tom Anderson -- Actually, things did go remarkably easy for us. I can't say that we struggled for a long time; we only struggled for about a month. When we were about a month into it, I remember thinking, "This may not work out." Just one day, in particular, we saw this huge spike because of people telling each other. It just went crazy from there. We didn't have this big, long struggle behind it. We put it up and it got popular very quickly.
Chris DeWolfe -- One of the major reasons it worked so well is that we had a very experienced management team. We've worked together for the last seven to eight years. With respect to timing, when we launched the site, social networking began to take off and the advertising revenue stream came roaring back. Two of the most interesting points were that we had no content costs and no customer acquisition costs. We had to make sure we had enough money to cover engineering and bandwidth costs, and we were confident that we understood the advertising business.
How do you get 43 million people to find out about your product in less than two years, especially without a spot of advertising and when you didn't buy a list of users?
Chris DeWolfe -- It was really key to create a set of functions that were compelling to our users and an efficient way to use them. Users socialize to figure out what they're going to do on the weekend. They use MySpace to discover new music and post events. Musicians upload their music. People use it for entertainment purposes, or to sell goods in the classified area. MySpace makes what they do in the offline world a) more efficient, or b) more interesting. If you have ten friends, and nine are on MySpace and you're not, you feel pretty left out. People end up joining sooner rather than later. The bigger the network gets, the faster it grows. We are now registering 160,000 people per day with no marketing.
But it starts somewhere. What community did you approach first and how well did your first efforts work?
Tom Anderson -- We didn't do traditional marketing, but we did try to find photographers and creative people because we thought that would make the site more interesting. In the beginning, it was all Los Angeles -- actors, photographers and musicians. That made for an interesting community, and brought in a lot of people. A lot of the early growth, however, had to do with the features and what our competitors were not allowing people to do.
Like what?
Tom Anderson - On Friendster if you were a band and you made a profile, they would delete it. They didn't want bands on their site. If you made a profile for your company or for where you lived or a neighborhood or an idea, you'd get deleted. We recognized from the beginning that we could create profiles for the bands and allow people to use the site any way they wanted to. We didn't stop people from promoting whatever they wanted to promote on MySpace. Some people have fun with it and others try to get more business and sell stuff, like a makeup artist or a band, and we encourage them to do that.
Bands have a huge presence on MySpace. How did you attract over 660,000 artists and bands to MySpace?
Chris DeWolfe -- Tom has a deep passion and understanding for what emerging musicians go through. He understands the frustration. I understood the macro trends of the music business. Labels were signing fewer acts, giving them less time to prove themselves and spending less money on marketing. We saw a need to develop a community for artists to get their music out to the masses. With MySpace, when they went out on tour, they could actually tour nationally. The band might have 20,000 friends on their list and send out a bulletin, saying, "I'm going to be in Austin on Tuesday night. Come see our show." It has allowed bands to make money on music without having a deal.
You can create a professional sounding CD, sell merchandise, and get your touring revenue in and make a living. It gives those artists a longer period of time to develop themselves before they get signed, or make a living without getting signed at all.
It has allowed bands like Fallout Boy to become successful and turn down record deals. Jonathan Daniel, a partner with Crush Music Management and manager of Fallout Boy and Panic, uses MySpace for all of his bands. He says, "For us, they're a great company to work with for two simple reasons. 1. The people that work at MySpace actually like music. We first met Tom when he sent one of our artists, Butch Walker, a message saying he liked his music. 2. People actually like MySpace. We don't have to work to get kids to go to MySpace to listen to music; they go there to listen anyway. Our artists are good and MySpace gives them a platform, like radio or TV, to be heard because it has an audience." Where else in the world can you market to millions of people FOR FREE?
Chris DeWolfe -- In the early days, there were a lot of bands signing up. They told us that they'd like to post their lyrics and tour dates. Users told us what they wanted to see, and we just built it. That's how we do a lot of our updates. We catalog what people tell us that they want. It's not super complicated.
Sifting through the suggestions of 54 million users sounds very labor intensive.
Chris DeWolfe -- Ninety percent of what people write in, we've already heard. Conversely, if we build a feature that doesn't work, they tell us and we fix it. It's similar to eBay in the early days. They would have all their sellers convene and ask them what they liked and didn't like and took action on that. That's exactly what we do. We're lucky to have that direct feedback mechanism.
Tom Anderson -- One example is that on the site everyone has access to me. What this means is that if you are a kid, you think that you can write to me. The users have uncommon access to the president who is deciding what the product will be. That's not something that most people would consider a good use of their time, having the users help us, telling us what is wrong with the site, and what's good about it. I'm spending time in the trenches, whereas the president might have hired someone to do that.
That's something that we have to stick to--being in touch with what people on the site want and staying true to our ability to be quick, and not following the business trends and tech trends that are the hot things, but going on our own instincts and feedback.
Most entrepreneurs will not be lucky enough to face all of the challenges that you've faced in the last two years. You've gone from zero to 160 employees. You've raised millions of venture capital. You positioned your company for an IPO, and a few months later were bought by one of the largest media corporations on the planet, in a deal that placed your company as pawn more than the kingpin. That's a lot of turmoil in the captain's quarters to navigate, while at the same time sailing on the Internet scene next to giants like Google, Yahoo and MSN. The MySpace story might rival The Odyssey.
Tom Anderson -- Chris had to deal with that more than I did. I focus more on the product. Chris has kept me shielded from it, and I come in when it is time to make a decision. We discussed an IPO. Ultimately, it feels a lot better to me where we are. With News Corp, we get the opportunity to grow. I think that is the smart thing to do in the long term.
Chris DeWolfe -- I've run businesses before. The other people on my team have worked in senior positions in other businesses. Your partners are the most important things. If you don't have good partners, it can't work. Some of our competition had extremely high turnover. It wrecks the continuity of running the business. You need to have similar sensibilities and people you trust to fill in your weaknesses with strengths that they have. That is underrated. Another trap that people fall into, when you start to grow and there is a little bit of success, is that people get on the soap box, like pundits and venture capitalists, who tell you how to run your business. It's important to be very disciplined in terms of not listening to them. We were resolute to do what our users wanted. Having discipline and saying, "No," is why we ended up being successful.
Ben Horowitz, the CEO of Opsware, says that when you are running a big business, you have to listen to a lot of smart people telling you how stupid you are.
Tom Anderson -- In a way, it's our lack of experience that helps -- definitely for me. The thing I like about Chris is that he's not like all the other people I've met in business. He's able to cut to the chase right away. We don't waste time on things. We didn't sit down and write up this big plan and spread sheets and try to force that imagined plan. We've been quick and nimble on our feet. I was working from common sense. Even though Chris does have that background, he's never been pushing me to that mold and he doesn't follow it himself. So, we are not doing what everyone else is doing. When we were getting popular, people were saying, "Why aren't you doing this or that?" I thought they were ridiculous and they thought I was ridiculous.
Chris DeWolfe - They said that we were trying to do too much -- music, instant messaging, blogs, etc. - and that we should just focus on one of those. That was the antithesis of what we aimed to do. Most of the sites that did that became boring after awhile. With that said, once you chose your product road map, then it becomes very important to focus on the top three to four initiatives and get those things done. Others try to do too many things at one given time. Our overall strategy was to build the next generation portal that would be extremely sticky, and layer those features in and around a social network. At any one time, we focus our developers on the top three to four initiatives, and don't get distracted with what others tell us we ought to do.
Well the buzzwords today are definitely text messaging and pod casting. What are you planning on those fronts?
Chris DeWolfe -- Pod casting is not really that different from streaming music, which we've done for quite a long time. Having a traditional pod cast that people subscribe to -- the hype is ahead of the quality. Pod casting is essentially a download, and you run into copyright issues. What you're left with currently is pod cast talk radio. If it's an established station, like NPR, it's fabulous. The average person having a talk radio show will not be that great. We'll keep our eye out and may undertake it at some point. We have a couple of different ways that people text message one another. There is Instant Messaging on the site. We also have an Internal email product, where people write messages. You can also leave testimonials on your friend's pages.
Let's talk about growth. You launched MySpace Records on November 7, 2005 into a very crowded space at a time when the record companies are getting slaughtered and the new music formats, like Apple's iTunes, are getting challenged on many fronts from Yahoo Music and Napster, to name two.
Chris DeWolfe -- The MySpace web site is the most important thing that we are doing right now. MySpace is a lifestyle brand. It's the first Internet company that is a lifestyle brand and produces life events. We had a festival with five bands where 10,000 people showed up at Dodger stadium.
Aren't ring tones outselling CDs? Can you make money on music in a world where everyone wants a free download?
Chris DeWolfe -- We embrace the ring tone companies. We embrace iTunes, Yahoo Music and the record stores. All of those venues will be distribution partners for us.
Supporting the streaming of tracks of 660,000 bands that use MySpace's music applications FREE OF CHARGE has to be very expensive. Was there ever a time when you thought that you were supporting this monolithic music community and not really getting any return of investment on it?
Chris DeWolfe -- With respect to our return for picking up the hosting/streaming costs, which are not small, we understand the advertising market. We feel comfortable with our ability to monetize the eyeballs on our site. We did not create a revenue model that relies on starving artists and the last ten dollars in their pocket. Advertisers can afford to underwrite the streaming and bandwidth costs. When you go to a MySpace band profile, you see their pictures, their friends, and you can send them a personal message. It almost feels like you're listening to the band in a communal experience. We saw a huge need. From that point, if you can aggregate all of these bands in one space, they are early adopters and trendsetters. By definition, they will bring their fans to MySpace. If you go to a show, ninety percent of the time now, the bands will say, "Come see us on MySpace."
MySpace is streaming never-before-heard confessions from Madonna for her latest album, Confessions on a Dance floor. I'm sure Maverick Records can afford the ads more than Hollywood Undead (the band that Tom found for the first MySpace Records CD). But is MySpace CASH POSITIVE or still a "nosebleed" as critics suggest?
Chris DeWolfe -- I can't talk about that. News Corp. isn't breaking out our revenue and profits. But I can tell you that we are number three in number of ads served on the Internet, which comes to 12% of all ads in the US on the Internet. I'm not suggesting that we are selling at the same price as Yahoo. We sell a lot of ads and we feel very comfortable with our business.
So, there are no plans for cost cutting? Others have critiqued your company for giving your web programmers a view of the Pacific Ocean, when it is much cheaper to farm out at least some of the labor to Bangalore.
Chris DeWolfe -- We have a great deal on office space, and we're at the tip of the iceberg of where MySpace can go again. We want to expand aggressively in wireless and internationally. Doing all of those things will grow our revenue. Now is the time to reach out and to expand. We haven't received pressure to do things differently.
So, the next area of growth is wireless and international. Those application strategies sound auspicious, and challenging. What are your plans for product growth in the near future, outside of MySpace Records?
Chris DeWolfe -- We're always looking for the right opportunities. We are going to be doing some events in Sundance, in conjunction with our independent filmmaker section on MySpace. We'll be doing more festivals, at least one major one over the summer.
I'm sure the MySpace summer music festival will be even more popular than last October's two-year anniversary concert. You've certainly won the allegiance of some great bands and music fans in the U.S. Do you think that MySpace can be as successful at attracting the independent film community?
Tom Anderson -- Another part of my background was that I was in film school. It made a lot of sense to me that the music part of our site would work for filmmakers as well. They'll be able to upload clips. There will be a section where you can watch what they are doing. They'll tell where their screenings are. It took a lot longer than we wanted to because we were growing so fast. For actors, directors and everyone associated with film and television, this will become as big of a resource for them as it has been for musicians.
Google's founders hired Eric Schmidt to run Google, and since then, the company has grown to $127.4 billion market capitalization. Do you imagine a time when the multi-billion dollar executive should come in and run things or, on the contrary, do you think that would be the kiss of death for a hip, young business?
Chris DeWolfe -- We feel really comfortable with our progress. We have huge plans for next year -- international, wireless and expansion into other mediums. We're hiring quickly, but in a controlled manner. We have set a plan that we believe everyone at News Corp. will bite off on. At the end of the day, time will tell. Continuity with senior management is very important. It's been one of the reasons why we've won. If we'd hired a big-time media executive a year ago, we wouldn't be where we are right now. We have a great relationship with our new bosses at News Corp.
Did you get much fallout from your fans, who worried that the renegade, independent spirit of MySpace would be sacrificed if you were answering to "The Man"? MySpace is, among other things, a site of free speech, personal whimsy, cutting edge music and the young.
Tom Anderson -- When this was announced, people were worried. It went away pretty quickly when we didn't change. If anything now, people will see it get better. We have more money to grow, faster bandwidth, and more programmers working on more features. We aren't getting pressure on designing it this or that way. It's our baby on what we want the experience to be. News Corp. has been great about that. I think we're going to continue to do well.
Do you see any other benefits about being part of a large media conglomerate, like News Corp.?
Tom Anderson -- I just came back from a screening at 20th Century Fox and they were asking me what bands to put in the movie.
So, I guess one of the final areas of concern would be predators and pornography on the site. How do you monitor and delete the creeps, and protect the teens that are on MySpace?
Chris DeWolfe -- These issues have been coming up. We're sensitive to it. We've undertaken a lot of different projects, and we're always looking for ways to make the site safer. Wired Safety wrote a bunch of safety tips for us and we put them on our site. We have a rapid response safety team that responds to issues very quickly. We have a team that weeds out anything that is pornographic in nature. Our users and our advertisers hate it.
[Editor's note: Safety Tips are located at the bottom of the MySpace home page.]
MySpace as NataliePace.com's 2006 Company of the Year and Chris DeWolfe and Tom Anderson as the 2006 Executives of the Year were the easiest calls we, at NataliePace.com™, have ever had to make. Just catch a rising star and hang on while the founders navigate the heavens. In the time it took me to complete this article, another million people registered with MySpace. The new filmmaker's section on MySpace will be introduced at Sundance this month, and launched officially "in the coming months," according to MySpace.
Other articles of interest:
News Corp. Takes on Cyber Space With Acquisition of Myspace.com by Natalie W. Pace, CEO and founder, NataliePace.com. vol. 2, iss. 10
Myspace: The Next Google. By Natalie Wynne Pace, CEO & Founder, NataliePace.com. vol. 2, iss. 4.
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