Behind MySpace cutbacks, a quandary over online ads
If social-media websites are all about sharing, the social-media industry is all about winner-take-all.
Today's winner is Facebook. Tomorrow, maybe Twitter. MySpace, which once dominated the industry, announced Tuesday that it was laying off nearly 30 percent of its workforce 鈥� about 420 people.
鈥淪imply put, our staffing levels were bloated and hindered our ability to be an efficient and nimble team-oriented company,鈥� MySpace CEO Owen Van Natta said to staff.
Left unsaid was the huge problem facing all media: The diffusion of ad revenue among so many technological platforms and channels that it's hard for any media business to sustain itself.
MySpace's dilemma
If anybody was poised to succeed in this digital melee, it should have been MySpace. Last year, it made some $585 million in US ad revenues, by , far more than Facebook's estimated $210 million.
But MySpace's ads have been turning off subscribers. The Conference Board that Facebook is used by in 78 percent of online households, while MySpace has only 42 percent,
Nielsen neatly summed up the problem in :
The industry is faced with a real 鈥楥atch-22鈥� situation. Part of Facebook鈥檚 extraordinary subscriber growth is due to a clean design with little advertising clutter; consequently, the audience growth hasn鈥檛 been accompanied by a similar surge in advertising revenue. On the other hand, MySpace鈥檚 more customizable entertainment and content-oriented offering 鈥� carrying more advertising 鈥� has been more successful at attracting advertising revenue, yet MySpace鈥檚 audience is flattening. The industry will be watching very closely at which one of these fundamental differences in strategy will prove the most successful in attracting advertising revenue in 2009.
A search for revenue
MySpace's announced job cuts are the first attempt to answer that question. Perhaps a streamlined MySpace will bounce back with its other ad-revenue strategies. (Its $900-million deal with Google ends next year). Or maybe Facebook or even Twitter might figure out its revenue strategy.
Someone will have to come up with a way to circumvent the disconnect between users who want free content 鈥� and no ads.
Even in cyberspace, there's no free lunch.
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鈥� But irony lives. You can still us for free.