Interpreting the MySpace layoffs

Tuesday, Fox subsidiary MySpace announced it was laying off 420 of its 1,420 employees. It’s hard to tell from outside what this means, and it’s in fact likely that today even the most knowledgeable insiders can’t say for sure what the future brings.

Here are four possible explanations.

1. MySpace was fat, dumb and happy. This sentence appeared in dozens of news accounts:

“Simply put, our staffing levels were bloated and hindered our ability to be an efficient and nimble team-oriented company,” MySpace CEO Owen Van Natta said in a statement.

Van Natta was only hired in April and previously was a top exec at Facebook. Perhaps Van Natta was right: late last year, the larger Facebook had an estimated 700 employees (according to Reuters via Wikipedia).

2. Fox has botched the acquisition. MySpace was once dominant, but being a subsidiary of big old media has not helped MySpace cope with increasing competition from its Web 2.0 rivals (especially Facebook). Fox Interactive Media (the division created four years ago to manage all the parent company’s new media efforts) is also in trouble and facing its own layoffs.

3. MySpace is in trouble. Its subscriber base is flat, while Facebook has been rapidly growing. Facebook took #1 worldwide last year, and passed MySpace in the US last month. Meanwhile, Twitter is also gaining on MySpace.

Network effects business rewards those who get ahead, and right now it’s hard to see how MySpace will dislodge Facebook. Is it consigned to be a permanent #2 (or even 2nd tier) ala Yahoo or HP workstations or Sony Ericsson or Motorola cell phones

On the other hand, MySpace could find a nice way to segment its audience to meet needs not being met by Facebook. The latter has found some clever ways to apply its technology, and so far LinkedIn has a distinct (even if overlapping) value proposition with Facebook. Apple has found its niche PC business to be a profitable one, and has used it to support its market leading music distribution system. (MySpace is the only one of the big 3 with a full-fledged media company behind it).

4. It’s symptomatic of broader Web 2.0 problems. A chronic problem for Web 2.0 companies (like many Web 1.0 companies) has been winning users but not revenues. MySpace was among a list of 11 Web 2.0 companies that CNET last year predicted were facing trouble. (The forecast troubles also included Twitter but not Facebook).

My crystal ball doesn’t say whether MySpace can turn it around, or whether these troubles extend to Facebook and Twitter. Right now, I feel like the Web 1.0 skeptics did in 1999: which would have caused me to reject spectacular failures like Webvan and Pets.com, but also (apparently) lasting companies like Google and Amazon.

MySpace, spam slimeballs, and brillance

At Madisonian.net, I found a link to a posting by the author of a new book, Stealing MySpace.

Here’s relevant excerpts:

Early in my investigation, I discovered that the founders of MySpace were scammers. Before they started the social-networking site, they sent spam, distributed spyware, and peddled spy cameras you could hide in your shoe and e-books touting “how to grow taller” and “how to hypnotize people.” MySpace was just an idea they copied from a popular Web site at the time, Friendster.

MySpace’s parent company, Intermix, wasn’t much better. It made most of its money selling subscription wrinkle cream and diet pills online, had a spyware business of its own, and had a thriving animated greeting card business best known for its fart and poopy diaper jokes.

In the book, the venture capitalist who backed Intermix (and was initially reluctant to support MySpace) David Carlick says why he’s not worried about the unsavory parts of Intermix. “Marketing has always been on the scary edge of ethical.”

This was a vastly different story than the canonical tech startup tale. This oft-told narrative stars a Bill Gates genius-type founder dropping out of Harvard to work on his technological breakthrough in a garage somewhere.
…
Meeting this new type of success story I wondered: were the MySpace founders just lucky? Or was their hucksterism part of what it takes to succeed?
…
And thus I stumbled onto my big idea: The greatest entrepreneurs are hucksters who have simply crossed the line into brilliance.

It sounds like a book well worth reading.

Web 2.0: most likely to crater

A regular topic on this blog is the problem of Web 2.0 business models, and in particular that these emperors have no clothes.

To this same end, on Friday CNET published a list of 11 Web 2.0 companies most likely to run out of money and die:

• Twitter
• Meebo
• TripIt
• Zillow
• Pandora
• Skype
• Ask
• DailyMotion
• Netvibes
• MySpace

Some of these make sense, as with Pandora, which has one of the top iPhone apps but has publicly said that (due to onerous record label royalties) that its end is near.

Some of the others I don’t get. Why list MySpace (with a rich sugar daddy) but not Facebook (with neither a sugar daddy nor a business model)? Skype and Ask may have troubles, but they each have a sugar daddy.

As with any other prediction, it will be a year or two before we see how prescient columnist Rafe Needleman was.

MySpace music is no iTunes killer

Apple is now (semi-officially) the America’s largest music retailer, a position that many other entertainment, e-commerce, IT and other companies covet.

One of them might succeed in displacing Apple. Dell knocked off Compaq, and the Japanese have helped Detroit in its CFIT. But generally I’m skeptical of the wannabes, since nearly all (or maybe all) will fail: a late “me too” strategy is a guarantee of that.

That’s why I took notice of today’s MySpace deal to distribute songs (and other products) for three of the big four labels. It is not “the latest iTunes killer,” because it’s something more: similar functionality but delivered in a significantly different way. And building on a website that’s already the top social networking site in the US, which has some opportunities to deliver value in a way that the iTunes Store does not.

The one problem I see is that because the site (unlike Amazon’s) is continuing to push DRM-infested tracks long after consumers and industry have spoken, that implies that a) the record labels are calling the shots and b) they still are in denial.

Big game, big ads

I missed most of the SuperBowl, although I did catch most of the 4th quarter and New York’s down-to-the-wire victory over the previously undefeated Patriots. (To the degree that I cared, I was rooting for someone to dethrone the Pats, particularly since they eliminated my Chargers two weeks ago).

However, the reason I normally watch the SuperBowl is the ads: certainly I remember the ads long after the game. For example, the 2000 EDS “herding cats” ad marked the end of the dot-com era but still ranks among the top 10 of all time. B-school profs have been using them to teach marketing for years. This year, the ads have the side benefit that they help us forget the torrent of insipid political ads that have been running on TV for the past month, particularly for the Indian gambling initiatives.

However, technology has changed the one-time nature of the ads. For the last few years I’ve caught the ads and read the articles on the WSJ paid site. But this year with Fox (and last year with CBS) the broadcast network has run them again online. (Presumably the business model is offering extra exposure to the advertisers). The NFL — one of the most vigilant about protecting its IP — is also running the ads on its site.

Of course in this era of Web 2.0, YouTube and even MySpace are getting into the act with their own replays. MySpace has it nicely organized by quarter. Of course, I learned about the MySpace page from the Fox broadcast (presumably since they’re a Fox subsidiary).

Normally, the memorable ads are either gimmicky or genuine. I disliked the Cars.com and E-Trade ads, while many others left me indifferent. (Of course, I’m an annoyed E-Trade ex-customer so I may be biased). The Verizon ad for the LG Voyager managed to make a hot product cold. GoDaddy.com (the once-cheap domain registrar) has milked its sex-sells approach of the past four years (starting with the 2005 “wardrobe malfunction”) to become a lame parody of itself.

On the plus side, the Taco Bell was mildly amusing, with a combination of mild warmth and edginess (rathe than the usual over-the-top campiness of the beer ads). The American Idol house ad was a clever tie-in linking the game, the NFL brand and the network’s biggest hit.

My favorite ad features NFL players Ephraim Salaam and Chester Pitts, talking about Pitt’s improbable path to college and pro football. The spot is heart-warming, an improbable happy ending — and is (mostly) true. It also involves SDSU, the alma mater of my mother-in-law (and my father’s first two years of college). What more could you want?

The ad was selected from 240 submitted by NFL players. It does exaggerate a musical instrument over a handheld calculator, but it’s still touching.

Oddly enough, due to the NFL legal beagles (or is it viewer indifference?) this heart-warming story is not posted to any site other than the NFL’s. The other odd thing is that the Fox ads are posted via MSN but playback is in Flash, not Windows Media.