Social media sites are rushing to have their IPO’s as they are trying to strike at a time when demand is high. Social media companies deserve credit for learning lessons from early social media sites that failed to strike while the iron was hot. No company reflected this aspect of bad timing more than MySpace. MySpace was once valued at $580 million dollars when Rupert Murdoch’s News Corporation bought the network back in 2005. Some investors believed the company was worth more than a billion dollars in 2008. So, how much is Myspace worth today?
MySpace is currently valued at just $30 million dollars. The company has lost nearly 95% of its value and is just trying to hold on for deal life. News Corp. is trying to dump MySpace on whatever media company would be willing to pay up for the networking site’s declining subscriber base. Shockingly, it was just three years ago that MySpace was more popular than Facebook. It turns out that three years is a lifetime in the virtual world.
MySpace continues to lose money with the company doubling its losses over the past year. The company has cut its labor force down to a skeleton staff with just 400 employees. According to TechCrunch, MySpace will lay off 150 of these 400 employees this week. Another 150 employees are expected to be laid off after that leaving only 100 employees.
The Failure Of MySpace
It turns out that an 80 something year old chairman was probably not the best choice to lead a young, edgy, and hip social media website.
MySpace’s problem highlights the problem with the social media business model. There is no loyalty in the social media world. Twitter is hot right now but I doubt that people will find tweeting that fascinating in 10 years. There will be some new method of communication that is a lot more efficient.
That is why Facebook is smart to start pricing the company for an IPO now. It appears that Facebook will always be king but Mark Zuckerberg knows that he needs to get the value out of Facebook while he can. While MySpace failed to generate even one single $100 million dollar bid, Facebook is currently valued at a minimum of $70 billion dollars. Zuckerberg is going to tap into these high valuations while investors are still enamored with Facebook.
MySpace failed to fully take advantage of its position as the industry leader for years. The company was too shortsighted and never focused on product development or improving its platform. MySpace seemed to be content with its market position and was stagnant while Facebook was continually evolving.
I would guess that most Facebook users started with a MySpace account first before creating a Facebook profile. MySpace users slowly migrated from the site spending more time on Facebook because they loved the social networking experience of Facebook. Eventually these users either closed their MySpace accounts or just stopped logging into MySpace.
Since MySpace has never been able to generate revenue outside of advertising deals, the company’s revenue declined as its user base shrunk. Now MySpace has been relegated to an afterthought joining the ranks of Bebo and Friendster.
That is exactly the reason that I am so skeptical about investing in social media websites. The economic moat is just not there. Any motivated Internet entrepreneur with a laptop, a great idea, and some cash can take down a social media giant.