Maybe MySpace has friends, but networks need money more

When, about three years ago, the media empire News Corporation added the social network MySpace to its list of acquisitions, its owners expected that the profits from advertising on the site would flow like a river thanks to the registration of new users and their communication on the network.



The site has grown, it has 118 million users worldwide, and they also continue to communicate and flirt. But the capitals do not arrive, as the company expected. In this fiscal year, which ends two weeks later, the News Corp division working with MySpace did not fulfill its plan to generate $ 1 billion in revenue from the network. When the non-compliance with the plan was announced in April, some analysts moved the media magnate to a lower category. Shares of News Corporation because of this fell in price by 5%.



In an effort to monetize, employees of the company are upgrading the social network home page to make it more streamlined and conducive to advertising. (It will also have a splash page to advertise the new film about Batman, The Dark Knight.)) The upgrade, which is planned to be completed by the fall, will consist in updating the navigation bar, search engine and video player.



Updating the site should help solve the problem of social networks, which lies in the appearance of user pages (no more beautiful than the school locker of a 14-year-old). However, difficulties also include determining the value of such networks for advertisers.

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A few months ago, the popularity of social networks began to decline. The creators of MySpace, as well as the competing firms Facebook and Bebo, have many ambitious plans to make profits, but in fact it is not yet clear that they can make sense of them.



Experts still doubt the ability of MySpace to monetize the service. This is evidenced by analyst Michael Nathanson (Michael Nathanson), employee of the London investment company Sanford C. Bernstein & Company.



Resources appear attractive to advertisers thanks to the traffic they generate. MySpace has 73 million users in the US alone, while Facebook boasts only 36 million - according to research firm comScore. (Although Facebook still caught up with MySpace by the number of users all over the world - each network had about 115 million people.) Young people do not leave their sites for hours.



But the MySpace resource receives most of all funds spent on the use of social networks. That is why it can be considered a leader in the industry.



Last month, during a conference call, President and Director of Manufacturing News Corporation Peter Chernin (Peter Chernin) somewhat lowered the company's ambitious requests for advertising in social networks. He also acknowledged that selling advertising space in user profiles and on group pages is not an easy process. According to him, social networks are a completely new form of activity on the Internet.



In 2006, Fox Interactive Media, the online division of News, responsible for MySpace, announced a three-year advertising collaboration with the Google search engine (valued at $ 900 million). Then, analysts began to argue that social networks will bring more revenue to their owners. Nevertheless, despite the fact that the Internet is becoming increasingly social, it is not easy to extract profits from this process.



In fact, not very realistic forecasts have not been realized. A change in attitude towards social sites began in late January. Then, after a year of advertising cooperation with MySpace, Google representatives said that the social network does not bring the expected income. (Although recently a search engine statement was received from the search engine staff.)



The positive attitude towards MySpace in particular and to social networks in general declined when the Fox Interactive Media division announced that it was impossible to fulfill the annual profit plan. By that time, the chief financial officer of the division was fired.



Analyst Mr. Nathanson believes that the failure to implement the MySpace plan can not but grieve. Experts are not too sure that the company will continue to develop despite its present position.



Other analysts are more optimistic about things. Anthony DiClemente from investment bank Lehman Brothers recommends News Corporation stock based on an annual growth in company profits of 25-30%. Naturally, MySpace representatives support a more optimistic point of view.



New CEO of MySpace, Jeff Berman, claims that the network still makes profits. Revenue per user has grown by about 50% since last year (but this is still not so much - at the moment, the profit per user is 6-7 dollars a year).



Analytical firm EMarketer assumes that the profits of MySpace at the end of this fiscal year (which ends on June 30) will be $ 755 million. The management of the network itself has not commented on this assumption. About a third of this amount will be received from an advertising agreement with Google. This year, according to representatives of Facebook, this network will receive advertising revenue in the amount of 265 million dollars.



Companies are actively working to resolve the problem of social networks. In the press, there are constantly releases about new features or regular MySpace partners. Site staff succeeded in implementing HyperTargeting - a program that shows community users exactly the advertising messages that match their hobbies and preferences. About a third of MySpace purchases are now made with HyperTargeting, according to Mr. Berman.



Facebook, by the way, also has a special advertising delivery system - personalized ads (social ads). Advertisers choose an audience (say, college students in Florida who watch the SportsCenter program, and there are more than 10,000 of them online), create advertising and set a budget. And MySpace is currently testing a new advertising network SelfServe.



The third largest US social networking site Bebo was acquired by the American media company AOL, a division of Time Warner Corporation, last month. It is planned to monetize the site using the AOL advertising system.



But for many large buyers, all these models of making profits are still experimental. At the same time, advertising budgets are declining. In December last year, EMarketer predicted that the cost of advertising on social networks in 2008 will amount to 1.6 billion dollars. In April of this year, this amount was revised, a new forecast was put forward - already 1.4 billion.



The problem is that all these forms of advertising are much more difficult to plan and measure quantitatively than advertisers think. And this affects the increase in costs - so says a senior eMarketer analyst Debra Ago Williamson (Debra Aho Williamson).



Mr. Berman believes that new advertisers have forced MySpace employees to re-learn how to work with advertising, and the staff of the network sales department is trying in every way to please them. For example, Procter & Gamble executives visited MySpace headquarters in April to familiarize themselves with the site’s advertising strategies.



However, there are suspicions that users of social networks do not view advertisements, no matter how strategically correct banners are placed on sites. Attention of users to advertising is the most rare element in the work of social networks. So says the vice-president of marketing company Facebook Chamat Paliapitiya (Chamath Palihapitiya). Interesting ads should get this rare attention.



So what can increase the profits of social networks? Personalized Facebook ads are the first step. They can use personal information (if the user has identified himself as a fan of the Nike brand, for example) and pass it on as an advertisement to the user's friends. The ad will say: your friend John Smith prefers Nike.



“What we do is create more effective advertising on the site,” says Mr. Berman. According to him, the splash pages on the MySpace homepage (such as the ads of “The Magnificent Hulk” last week and the “Dark Knight” on this one) can be viewed by 40 million users per day. And this is more than the most popular TV shows. MySpace President Chris DeWolfe believes that skeptics should restrain their ardor. “We have achieved much more than Google or Yahoo at this stage of its development,” he says.



Mr. Paliapitiya agrees with this: “In five to ten years, when the development of networks reaches its peak, we will see who will be the winner.”



Translation: Roman Yuriev, toodoo (http://toodoo.ru) is a social network of saytofanantov.