Licensed to: iChapters User CASE 4 MYSPACE: THE ONLINE REALITY SHOW In the fall of 2006, Chris DeWolfe found himself step- In the Beginning ping back in time as he stood before a crowd of alums and current students from the Lloyd Greif Center for Chris DeWolfe hails from Portland, Oregon; both Entrepreneurial Studies at the Marshall School of Busi- parents were teachers. So it was a bit of a break from ness of the University of Southern California. He was tradition when he decided to major in business at the there to receive an award as the Alumni Entrepreneur University of Washington. Upon graduation he took of the Year for co-founding the second largest site on a job, but two years into it, he began to have some the Internet, MySpace, the social networking phenom- doubts. enon. But more than that, he was there to remember his roots and to tell an eager audience of entrepreneur I looked to my left and looked to my right and saw hopefuls whatat to watch out forfor.. “TechnologyTechnology does not that my colleagues were twenty years older than me, drive demand,”d,” he cautioned the students. “MySpace aandnd it was aalmostlmost llikeike llookingooking into ththehe fuffuture.tuure. And has always takenakkenen a ssociologicalocioologigicac l vivviewpoint—Howewwpop inint—t How doo I was scscaredcarreed bbecauseecause tthathat wasn’t ssomethingomeetthih ng tthath I people do things?hinings? WhWhathaat ddoo thttheyheyy llikeiike too ddo?o?o TThenheh n ththehe wwawantedntedd ttoo dodo.o. I wwawantedntted ttoo crccreateeaatee mmyy owownwn bubusiness;us MySpace teamamm fi gguresuru es outoutu howhoww theythhey cancacan enableennaba llee theirtheeiri I wantwantedeed ttoo ddo mmyy oowownn ththing;hinng; I wwantedannted too iinnovate.nnn users to do wwhathat thetheyy want.” Asked what he would Frustrated, heh decideddecided to further his educeducationa by have done differently,fferently DeWolfe doesndoesn’t’t miss a beatbeat—“I“I getting an MBAMBA. His friends told him that hhe had to would have started it sooner.” He would have expanded have a plan to get into a good business school. He aggressively and hired more developers in the early had to know whether he wanted to be a consultant, days, because “speed to market is important.” an investment banker, or a marketing manager. DeWolfe was looking back at the launch of the Again, DeWolfe sidestepped the traditional route— company he co-founded with Tom Anderson from a “My plan is, I’m going to fi gure out a plan when I new position in that fall of 2006. MySpace had recently get there.” He was accepted into the Marshall School been acquired by Rupert Murdoch’s News Corpora- of Business at the University of Southern California tion (News Corp) as part of a $580 million package (USC), and for the fi rst year he immersed himself in deal for Intermix Media, MySpace’s parent company. the Internet, which in 1995 was just beginning to With the enormous resources of News Corp behind gain some ground as a commercial channel. Netscape it, MySpace was taking on an astounding number of and Yahoo! had gone public and things were getting new projects: a new Google agreement for text ads, a interesting. In the second year of his MBA, he took MySpace records label, a VoIP feature so their users a class in the Lloyd Greif Center for Entrepreneurial could call one another, international sites, and another Studies and was hooked. He knew what he wanted to 20 products in various stages of development in the be—an Internet entrepreneur—that was his passion. pipeline. How did MySpace go from launch in late After graduation, DeWolfe and three of his USC 2003 to online media giant by 2007? Marshall friends took jobs at an Internet data-storage 458 Copyright 2009 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Allen_301590_Case_4.indd 458 12/14/07 4:11:13 PM Licensed to: iChapters User Case 4 MYSPACE: THE ONLINE REALITY SHOW 459 company, Xdrive; DeWolfe became the company’s each network could have its own design and user head of sales and marketing. It was in that capacity interface, yet they would all be connected seamlessly that he met one of his future partners, Tom Anderson, to the Internet. The 1980s saw the rapid develop- in 2000. Anderson, a frustrated English major at UC ment of LANs (local area networks), PCs, and work- Berkeley and then fi lm school major, responded to an stations, which contributed to the swift expansion of ad to earn $20 for testing an Xdrive product. Al- the Internet that was now serving a broad base of though Anderson disliked the product immensely, researchers and developers. DeWolfe liked him so much that he offered him a full- In 1991, the fi rst user-friendly interface was de- time job. Xdrive was not a success, however. It was the veloped at the University of Minnesota. Gopher, as it typical dot com company of the day, raising $120 mil- was named after the university’s mascot, quickly lion and spending it foolishly on parties, excess adver- expanded to over 10,000 systems around the world tising, and hiring people it didn’t need. That experience while other universities developed enhancements to told DeWolfe that it was time to start his own com- it, such as a searchable index of gopher menus and a pany, so he and Anderson left the fi rm (in bankruptcy) spider that crawled gopher menus to collect links in 2001 and launched an Internet direct-marketing and place them in the index. But it was the develop- fi rm called Response Base. They sold that business for ment in 1993 of Mosaic, a graphical user interface, several million dollars in late 2002 to eUniverse, a by Marc Andreessen and his team at the National holder of multiple Internet assets. Both joined the Center for Supercomputing Applications that be- company, but just six months later, DeWolfe and An- came the catalyst for the commercial Internet as we derson were asking themselves, “What’s next?” know it today. With the launch of Delphi, the fi rst national commercial online service that offered In- A Brief History of the Internet ternet access to subscribers in 1992, the commercial Internet could not be stopped.stopped. In 1995, the National Althoughgh thethe Internet didn’tdidn’t becomebecome tthehe focusfocus ofof ScienceScience FoundationFoundation haltedhalted fundingfunddini g of the Internet consumermerr attentionatttene tiionn uuntilntntil aboutaboboutt 1995,199995, iitstss hhistoryistooryr ac-ac-c backbone,backkboonen , andanand commercialcoc mmercic all networksnettworks likeli AOL and tually ddatesata es bbackacck to AAugustuuggusu t 191962,9622, whwhenene MMIT’sITT’s CoCCompuServemmpuSeervee wwereeere boborn.ornn. J.C.R. LLickliderici klk ididerr bbeganegegann ddiscussingisscuc ssining whwwhatatt hhee ccacalledllllede ttheheh UUntilnttili 11998,998, wwhenhhen MiMMicrosoftcrossooft rereleasedlleaas Windows “galacticic network,” a “globally interconnected set 9988 with a full-scale browser incorporateincorporated, Netscape’s of computers,”puters ” which would enable anyone in the browserbrowser, which was freefree, was the mmost popular network to access data and programs from any site. browser on the market. At this point, there was no While serving as the fi rst head of the computer stopping the proliferation of Internet sites as more research program at DARPA, he convinced his and more companies tried to fi nd business models colleagues of the signifi cance of his concept. By late that would enable them to make money through this 1966, MIT researcher Lawrence Roberts had cre- exciting new channel. The highly speculative period ated a plan to build the ARPANET and by 1969, between 1995 and 2001 has been called the “dot the fi rst node was installed at UCLA. Within a com bubble,” because stock markets saw their value month, two additional nodes were added at UC explode to unprecedented levels from the growth in Santa Barbara and the University of Utah, and by Internet companies and related sectors only to crash the end of 1969, there were four host computers in the spring of 2000 because these same companies connected on ARPANET. Nevertheless, it took couldn’t deliver business models that made sense or until October 1972 to demonstrate ARPANET’s contributed to realistic valuations. The dot com capability to the public at an international confer- bubble was not a unique event. History has wit- ence and to introduce its newest application, elec- nessed other booms and busts: radio in the 1920s, tronic mail. transistor electronics in the 1950s, and home com- ARPANET was the fi rst of what would become puters in the early 1980s. Some of the more notable many networks linked by an open architecture net- dot com failures were Webvan, the online grocer; working called the Internet. In open architecture Pets.com; and eToys.com. Copyright 2009 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Allen_301590_Case_4.indd 459 12/14/07 4:11:13 PM Licensed to: iChapters User 460 Case Studies Today many pundits question whether we are working. DeWolfe quickly consulted with his devel- heading into another dot com bubble—the sequel— oper and learned that the system they had built with the recent acquisitions of MySpace and You- couldn’t survive an assault by more than 200 people Tube at extremely high valuations. These social at the same time. Realizing the mistake that had been networking sites depend a good deal on content that made, DeWolfe instructed the developer to build the their users create and on their users’ ability to build site to hold millions of people at the same time.