Web 2.0

Unternehmen in der Digitale Ökonomie: Case study “MySpace” Web 2.0 – Das Internet von Morgen Espen Sundve Wintersemester 06/07

MySpace “The world’s larges social networking site”

ETH Zürich, Department of Management, Technology and Economics MySpace Web 2.0

1 Introduction

1.1 Task The main purpose of this analysis is to describe MySpace, its business model, and its key success factors. The analysis is done as part of the seminar course “Unternehmen in der Digitale Ökonomie: Web 2.0 – Das Internet von Morgen”, at the department of Technology Management and Entrepreneurship at ETH Zürich.

1.2 Web 2.0 Web 2.0 refers to the second generation of Internet-based services. This includes social networking sites, wikis, communication tools, and folksonomies1. O’Reilly and MediaLive International used the phrase “Web 2.0” as a title for a series of conferences. The phrase doesn’t have a hard boundary. It is more a set of principles and practices [O’Reilly, 2005].

O’Reilly summarizes what they believe to be the core competencies of a Web 2.0 company as follows [O’Reilly, 2005]: - Services, not packaged software, with cost-effective scalability - Control over unique, hard-to-recreate data sources that get richer as more people use them - Trusting user as co-developer - Harnessing collective intelligence - Leveraging the long tail through customer self-service - Software above the level of a single device - Lightweight user interfaces, development models, and business models

1 Folksonomies are defined by Thomas Vander Wal (2005) to be a ”result of personal free tagging of information and objects (anything with an URL) for one’s retrival. The tagging is done in a social environment (shared and open to others). The act of tagging is done by the person consuming the information”.

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MySpace Web 2.0

2 Introduction to MySpace

2.1 Key facts In July 2003 Tom Anderson founded the site MySpace along with CEO Christ DeWolfe, partially owned by Intermix Media (a Los Angeles-based Internet marketing company). In July 2005 Rupert Murdoch’s News Corporation bought Intermix Media for US $580 million [Kornblum, 2006].

According to Alexa Internet2 MySpace has grown to become the 5th biggest website globally3. MySpace experienced an exponential growth in page views from the beginning until the first quarter of 2006 (see Figure 2.1), now having 48 million unique visitors and 27.4 billion page views in June 2006. The users are mostly between 14 and 34 years old, and the number of members are growing by 5 million a month, according to MySpace’s numbers [Kornblum, 2006]. According to News Corp’s Annual Report for 2006, MySpace now have more than 100 million member profiles.

Figure 2.1: Daily Pageviews for MySpace in a 3-year perspective, according to Alexa Internet

2.2 Features and services According to the News Corp4, MySpace is integrating web profiles, blogs, instant messaging, e-mail, music downloads, photo galleries, classified listings, events, groups, chatrooms, and user forums, MySpace.com has created a connected community where users put their lives online. It has also become a key music destination, with more than 350,000 bands and artists – having used the site to launch new albums and enable users to sample and share songs.

2 Alexa Internet has one of the world’s largest Web crawls and provides services as ”Alexa Site Information” which includes information about sites (statistics, related links etc.). 3 According to Alexa Internet, 30th of November 2006 4 http://www.newscorp.com/news/news_251.html

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MySpace Web 2.0

Since early 2006, MySpace has also offered to access the service in different regional versions, this is; Global site, Australia, France (beta), Germany (beta), Ireland and United Kingdom.

2.3 Content of a MySpace profile There exists different types of MySpace profiles. These are normal user profile, artist profile, filmmaker profile and comedian profile. Common for them all are profile information such as name, location, blog, friend list and comments made by others. The ability to upload photos are also a common feature.

On a normal user profile one can write information about ones music, movie, television, books and heroes details. One can also add information about current position / school, and other details as status, orientation, occupation, education, body type and more. Furthermore the users can add film clips, music and more on their personal page. One popular feature is the possibility to edit the HTML and CSS5 mark-up of the page. Third parties have arisen, offering HTML and CSS help for the users.

On the artist profiles the bands and artist can add music. Similarly, the filmmakers can add video clips on their profile page, and comedians can add sound clips or video clips on their page.

Figure 2.2: MySpace front-page, and a typical user page (Tom)

Figure 2.3: User page for Microsoft (Bill Gates) and music artist, Johnny Cash

5 Hypertext Markup Language (HTML) and Cascade Style Sheet (CSS)

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MySpace Web 2.0

3 Business model

When looking at the business model for MySpace, one may first want to clarify the concept in question. Many different conceptualizations of business models exist, all with various degrees of resemblance or difference. Osterwalder (2004) proposed a single reference model synthesizing the different conceptualizations, based on the similarities of a large range of models [Osterwalder, 2004]. This reference model will be used for analyzing MySpace’s business model in chapter 3.1. Furthermore one can, by the looking at business models following the characteristics of “Network Effects” [Shapiro and Varian, 1998], see that these characteristics is appropriate for describing how MySpace do business. This matter will be addressed in chapter 3.2.

3.1 Description of the business model for MySpace The business model is a simplified representation of how we do business, and by this means, Osterwalder uses nine building blocks to help us describe the business model [Osterwalder, 2004]. These nine building blocks are useful to be able to understand the business model for MySpace. A summarisation of the key factors in MySpace’s business model is given in figure 3.1.

Partner Network Customer Relationship News Corp., Time Warner’s TBS, Google, Gave users more control, rapid development, friend with Tom, long term deal with Google

Core Capac ities Value Configurations Value Proposition Distribution Channels Customer Segments

Product develo pers “in Social networking Interactive, user- Internet sites, sites Young people (14.-34), market”, add-on product website submitted network of owned by Intermix, e- musicians, filmmakers, development, partner friends, personal profiles, mail advertising, offline celebrities, comedians, networks blogs, groups, photos, advertising, word of brands music and videos. mouth, user invitations

Cost Structure Revenue Streams Success 300 employees, mainly $900 million deal fixed costs, marginal cost The world’s larges social between Google and by attracting a new user networking site News Corp, online close to zero advertisement

Figure 3.1: MySpace business model in a simplified representation

With rapid product development cycles, a large partner network, driven by strong network effects, MySpace is able to create value trough an efficient distribution, low marginal cost of attracting new users and having a trusted relationship to its customers.

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MySpace Web 2.0

3.2 MySpace and Network Effects After reaching a critical mass of user, MySpace experienced what is called network effects [Shapiro and Varian, 1998]. The value of the good, in this case the , is more or less determined by the user base. In addition, one can expect that the users also found value in the system outside the network effects (such as photo sharing, bloging etc.) – this making it possible to reach the critical mass. The network effects are considered to arise on the demand side, distinguishing this from the often used term “economy of scale”, which is supply side.

In the case of MySpace, a list over the friends is a very important driver for the growth. This because of the network effects. The larger user base, the easier it is to build a large list of friends for a user. This also leads to an efficient use of what one can be considered as one of the best distribution channels; recommendations, invitations and word of mouth.

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MySpace Web 2.0

4 Key success factors

In addition to MySpace there exists a great number of similar websites, such as , the social site and bloging sites such as LiveJournal and . Still, MySpace can be considered to be the most successful, and Peter Klaus, a marketing strategist with Fleishman-Hillard summarize this fact by saying: “(…) thanks to its easy-to-use tools, and being at the right place at the right time, MySpace is by far the most popular” [Kornblum, 2006].

In his article from September, 2006, Nisan Gabbay (a board observer in a company that competes with MySpace), stresses four key success factors which have lead to MySpace great success [Gabbay, 2006]. These factors will be discussed in more detail in the following chapter. In addition it is interesting to see how MySpace diverse from a similar website, namely Friendster (owned by Google). One can say that MySpace and Friendster are rooted in different cultural practices and values [Boyd, 2006].

4.1 Users and user control The greatest early success for MySpace was with teenagers. The way the teenagers used the site was by sharing pictures, communicating with friends and creating their best possible “my space” on the web – in other words, they used the site very much for self-expression. The photo sharing is also of great importance. MySpace let the users add more photos than for example Friendster, by using third party services (like PhotoBucket and ImageShack).

MySpace’s CTO, Aber Withcomb, express the fact that MySpace let the users tell them what to do, instead of letting the service telling the users what they can do, as one of the most important strategies behind their success. An example is when users of MySpace created group profile pages around interest and associations, something MySpace accepted in contrast to Friendster. Another example is when MySpace let the users “hack” their pages, adding photos and graphics images into their friends comment boards and edit the HTML/CSS of the page, this in contrast to other pages, where users had a limited possibility to affect the appearance of their profile page. Other services tend to offer a set of templates, which can’t be considered as personalisation. Out of respect, most users didn’t even overwrite the advertisement on MySpace. This example clearly shows the trusted relationship MySpace managed to build with its users.

4.2 Product development Another factor cited by Withcomb is the fact that they listened to their users and added features frequently (usually noticeable new features every week). With rapid development cycles, MySpace added blogs, comment boards, message boards and instant messaging (IM) long before Friendster.

4.3 Distribution In the beginning, MySpace, used a combination of tactics, including traditional, cost per acquisition (CPA) campaigns through established online brands, which yielded successful response. The team had strong background within direct e-

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MySpace Web 2.0 mail marketing and CPA tactics. After acquiring its first few million users, MySpace relied on pure positive feedback.

When Friendster launched, it was quickly inhabited by populations who had a good reason to connect with each other (as people living in a region different from their hometown). This in contrast to MySpace, where the connections between people not only were about reconnecting with old friends, but also about finding new friends, flirting, advertising of bands etc.

Furthermore, Withcomb emphasises the fact that MySpace made sure influentials in Hollywood (stars, bands etc.) were among the first users, as one of the key secrets behind their success. This in addition to letting all the new members having a friend when they open an account, namely Tom, the founder of MySpace.

4.4 Performance A key point in the Friendster versus MySpace battle was the well-documented Friendster site performance issues that drove many initial Friendster users away. MySpace made some decisions to prefer performance over some features, such as showing “friend-chain” (which cause a heavy computational load when dynamically calculated). Another strategic choice made by MySpace was to only allow US-based user registration in the beginning, until they got a critical mass in US.

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MySpace Web 2.0

5 Summary

After looking closer to the business model of MySpace and looking at the way they interact with their users, one can say that MySpace fulfils all the nine core competencies of a Web 2.0 company.

The MySpace case is clearly a successful story, now ranking as the fifth biggest website in the world, just after some years of existence. To be able to grow in this manner one have to be in the right place at the right time, but also make the right strategic choices. MySpace has done so by listening carefully to their users needs, providing rapid product development cycles, introducing famous artist and celebrities for the social network and providing a high performance website.

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MySpace Web 2.0

References

[O’Reilly, 2005] Tim O’Reilly, www.oreillynet.com, 2005 “What is Web 2.0”

[Kornblum, 2006] Janet Kornblum, USA Today, 2006 “Teens hang out at MySpace” http://www.usatoday.com/tech/news/2006-01-08- -teens_x.htm

[Gabbay, 2006] Nisan Gabbay, Startup Review, 2006 “MySpace Case Study: Not a purely viral start” http://www.startup-review.com/blog/myspace- case-study-not-a-purely-viral-start.php

[Boyd, 2006] Danah Boyd, www.danah.org, 2006 “Friendster lost steam. Is MySpace just a fad?” http://www.danah.org/papers/Friendster MySpaceEssay.html

[Osterwalder, 2004] Alexander Osterwalder, University of Lousanne, 2004 “The Business Model Ontology – A Proposition in a Design Science Approach”

[Shapiro and Varian, 1998] Shapiro and Varian, Harvard Business School Press, 1998 “Information Rules: A Strategic Guide to the Network Economy”

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