Just as the valuation of Facebook crossed the $50 billion mark, its once great rival MySpace was revealing a different set of numbers: MySpace axed half its work force, some 500 jobs. MySpace’s owner, News Corp. may have had enough the social networking business. At Time’s parent, Time Warner, we know all about what happens when a gargantuan media company buys a hot technology company, with plans to apply megamedia genius to it. We ended up with AOL Time Warner, a galactic business disaster. Here’s how it works:
Megamedia company makes a strategic rationalization: we need to get into a growing media segment; there’s a fleeting opportunity—buy it now or pay even more in the future, assuming something’s available. And there’s pressure on top executives to prove to shareholders how smart they are.
So it was when News Corp. boss Rupert Murdoch snatched the budding MySpace from the hands of Viacom in 2005 by throwing an extra $50 million or so at Chris DeWolfe and Tom Anderson, MySpace’s founders, making the price $580 million. Mr. M. was roundly applauded for snatching the Deal of the (Early) Century. MySpace was valued at three times that price within a year or so, such was MySpace’s potential. Viacom’s CEO, Tom Freston, didn’t last very long after losing that contest. It was typical Murdoch in that he was not going to let money get in the way of his plans, which he proved when he overpaid by $2 billion to buy Dow Jones and its Wall Street Journal.
One difference is that News Corp. knows how to run news organizations (the company name says it all, doesn’t it). But like Time Warner, News Corp. figured it could figure out how to maximize the value of its pricy Internet acquisition. MySpace had already put away Friendster and as of December 2007 it was pounding Facebook in monthly page visits, 72 million to 33 million in the U.S. Eventually, MySpace’s founders flitted off, while Mark Zuckerberg at Facebook stuck around to work on his college networking project. He made Facebook cool. And that’s something no megamedia company can buy.