Cover Story

The Rise and Inglorious Fall of Myspace


In 2006, Jeremy Jackson—the buff, bronzed former Baywatch child star—couldn't imagine a world without Myspace. He was a single, underemployed actor in Los Angeles, an exhibitionist in need of an audience, and Myspace filled almost every need. He spent hours every day on the edgy social network, which was known as a pop music hub where artists such as Lily Allen and My Chemical Romance helped launch their careers. Jackson had more than a thousand "friends." He sold trucker hats and flirted with women. His profile page was decorated with Trojan Magnum XL condoms. He was the poster child for the Myspace lifestyle.

But things changed.

"I tried to cling to Myspace for a long time, hoping that someone there would come up with some idea to keep it alive," says Jackson, 30. "But my assistants and business partners finally beat it into my head that it was a dead horse. It's done. It's a joke. If you do stuff on Myspace, you just look sad."

Jackson still hustles for attention on the lower rungs of fame—he currently stars in season five of Celebrity Rehab, in which he battles his addiction to growth hormones for cable television viewers. But he now does his digital communing on Facebook and Twitter. He hasn't checked his Myspace page since 2009.

At its December 2008 peak, Myspace attracted 75.9 million monthly unique visitors in the U.S., according to ComScore (SCOR). By May of this year that number had dropped to 34.8 million. Over the past two years, Myspace has lost, on average, more than a million U.S. users a month. Because Myspace makes nearly all its money from advertising, the exodus has a direct correlation to its revenue. In 2009 the site brought in $470 million in advertising dollars, according to EMarketer. In 2011, it's projected to generate $184 million.

In February, News Corp. (NWS), which bought Myspace and its parent company, Intermix, in 2005 for $580 million, started officially looking for a potential buyer at an asking price of $100 million, according to a person familiar with the sale process. Yet even in the midst of a frenzy for social media that has seen LinkedIn (LNKD) valued at $6.4 billion and Groupon rebuff a $6 billion takeover offer from Google (GOOG), barely anyone wants to buy Myspace. On June 9 the News Corp.-owned tech blog AllThingsD.com reported that a group of investors led by Activision Blizzard (ATVI) chief Robert Kotick was closing in on a deal. "Getting people to come back to something that in their minds has become less useful is an incredible challenge on the Web—just ask AOL," says Richard Greenfield, an analyst with BTIG. "Myspace has become an eyesore for News Corp."

It's an eyesore for users, too. Many Myspace pages appear to be host bodies for the worst kinds of advertising parasites. On the upper right-hand corner of the page for Zaiko Langa Langa, an African band Googled at random, a photo of a blonde in a tight T-shirt appears, asking, "Want a Girlfriend? View Hundreds of Pics HERE!" (It's an ad for a dating site called True.) Farther down, someone has posted footage of nearly naked jiggling buttocks. There hasn't been an update from the musicians in weeks.

Mismanagement, a flawed merger, and countless strategic blunders have accelerated Myspace's fall from being one of the most popular websites on earth—one that promised to redefine music, politics, dating, and pop culture—to an afterthought. But Myspace's fate may not be an anomaly. It turns out that fast-moving technology, fickle user behavior, and swirling public perception are an extremely volatile mix. Add in the sense of arrogance that comes when hundreds of millions of people around the world are living on your platform, and social networks appear to be a very peculiar business—one in which companies might serially rise, fall, and disappear.

Danah Boyd, a senior researcher who studies social networks at Microsoft Research (MSFT), attributes their instability to the way users can bind themselves by race and class, taste and aesthetics. Influential peers pull others in on the climb up—and signal to flee when it's time to get out. "The thing about user adoption and user departure is that it's not a steady flow," says Boyd. "Think of it as, you're knitting a beautiful scarf, and you're knitting and knitting, and you get a bigger and bigger scarf. Then someone pulls a loose thread at the bottom. And it all unravels."


In 2007, News Corp.'s belief in Myspace was best represented by architecture. The company was considering a redevelopment plan that would have moved its headquarters to the far west side of Manhattan. Sketches from the time show an alternate vision of the company's future anchored, front and center, by a gleaming Myspace pavilion. The other elements of Murdoch's old-media empire—the Wall Street Journal and New York Post newspapers, the Fox News television network—would be scattered around the company's new beating heart.

The building was never built, and Myspace's centrality to News Corp. was fleeting. Interviews with more than a dozen former Myspace and News Corp. insiders reveal how a rocky six-year marriage ultimately undercut Myspace's once-dominant social media position, leaving the field wide open for Facebook's rise and potentially squandering billions of dollars of future revenue along the way. According to two former News Corp. executives, Murdoch, who was initially enamored of his new digital plaything, lost interest in Myspace as his pursuit of the Wall Street Journal, which News Corp. bought in 2007, consumed his attention. A News Corp. spokesman, Dan Berger, citing ongoing negotiations with potential Myspace buyers, declined to make current executives available for comment.

In February 2009, with the threat of Facebook's growing popularity looming over their company, Chris DeWolfe and Tom Anderson, the co-founders of Myspace, appeared on The Charlie Rose Show. DeWolfe explained that Myspace was more than a social network; it was a portal where people discovered new friends and music and movies—it was practically where young people lived. "We have the largest music catalog in the world," DeWolfe said. Anderson predicted that by 2015, Myspace would have up to 400 million users. DeWolfe said the site's worth was "in the billions."

Rose mentioned how Murdoch had bought Myspace's parent company, Intermix, for $580 million. "Are you happy you made the deal?" asked Rose.

"Um …," said DeWolfe.

Rose looked at Anderson, who grinned awkwardly. DeWolfe took a gulp of water.

"That's a tough one, right?" said Anderson.

DeWolfe doesn't work for News Corp. anymore and has previously declined to speak in depth about the acquisition. He broke his silence to give Bloomberg Businessweek his assessment of Myspace's collapse.

DeWolfe still has a Myspace page, but he doesn't check it much. When he does, he says, he cringes. "I'm a little disappointed in the music product, given that we spent so much time and effort to get more music licenses than anyone in the world. I haven't seen Myspace Music evolve how it should have.

"I think any time a startup is acquired, there's always a certain amount of culture clash," DeWolfe continues. "There are more meetings during the day with a big company. There are three different levels of finance that you need to go through. There are people that want to meet with you in other divisions, and it's a professional courtesy to see how you can work with them. So from that perspective, you sort of end up taking your eye off the ball.

"After we left, the guys that took over were never Myspace users," says DeWolfe, who now runs a startup called MindJolt. "They didn't have it in their DNA." According to a source familiar with the sale, DeWolfe is also a finalist to buy the company. DeWolfe declined to comment.

DeWolfe, 45, and Anderson, 40, started Myspace in 2003 while working at EUniverse, an Internet marketing company in Los Angeles that sold everything from printer cartridges to skin cream. The colleagues dreamed up Myspace as a more freewheeling version of Friendster, an early social media network that became popular and, in a foreshadowing of things to come, was eventually abandoned en masse by its users.

For a time, Myspace was blessed with the improvisational luck that seems to grace all successful startups. One of the site's first breakthroughs, for example, came by accident. Shortly after launching in August 2003, Myspace developers realized they had accidentally permitted users to insert Web markup code, allowing them to play around with the background colors and personalize their pages, leading to the site's kaleidoscopic, techno-junkyard aesthetic, which became its trademark.

DeWolfe and Anderson went out and strategically recruited up-and-coming bands such as the Billionaire Boys Club and pinup girls such as Tila Tequila to join the site. Initially, you had to be a Myspace member to see the resulting profile pages, listen to the music, or check out the bikini pics. In April 2004, Myspace dropped the requirement, and anybody could cruise around. Voyeurism spiked, page views skyrocketed, and Myspace engineers raced to keep up with the growth.

In the summer of 2005, Murdoch swooped in and bought Myspace, surprising Viacom (VIA/B), which had been finishing up a bid for the company. To help integrate his growing family of Web companies, such as the video game fan site IGN and Photobucket, into News Corp., Murdoch formed a new division called Fox Interactive Media, or FIM, and appointed a then-41-year-old executive named Ross Levinsohn, who had been working in the relative backwaters of FoxSports.com, to lead it. Murdoch also kept DeWolfe and Anderson in their jobs running Myspace. A few months later, News Corp. moved the Myspace staff out of their hipster digs in Santa Monica to FIM's headquarters in Beverly Hills.

DeWolfe and Anderson were supposed to report to Levinsohn—in theory. In practice, according to three former FIM and Myspace employees, DeWolfe and Anderson routinely sidestepped their would-be bosses. DeWolfe says that despite the perception he found numerous executives to be positive influences during his News Corp. tenure, including Wall Street Journal Managing Editor Robert Thomson, Fox News chief Roger Ailes, and Peter Chernin. "I learned a lot from Roger Ailes about trying to buck bureaucracy," says DeWolfe.

Part of his challenge, DeWolfe says, was the pressure to monetize the site. While developers at Facebook, Tumblr, and Twitter—startups backed by venture capital—were more free to design their products without the immediate pressure of advertising goals, Myspace managers had to hit quarterly revenue targets. That pressure increased dramatically in the summer of 2006, when Google paid $300 million a year for three years to be the exclusive search-engine provider on Myspace on the condition that the social network hit a series of escalating traffic numbers.

In retrospect, DeWolfe says, the imperative to monetize the site stunted its evolution: "When we did the Google deal, we basically doubled the ads on our site," making it more cluttered. The size, quality, and placement of ads became another source of tension with News Corp., according to DeWolfe and another executive. "Remember the rotten teeth ad?" DeWolfe says. "And the weight-loss ads that would show a stomach bulging over a pair of pants?"

At one point, according to DeWolfe, Myspace asked the sales team at FIM to stop selling the gross-out ads, even though they had high click-through rates. "If we were doing $500 million of revenue, it meant taking a $20 million haircut," says DeWolfe. "It was the right thing to do from a long-term growth perspective. But it took a lot of work to get through the various different levels at News Corp. We had to jump through hoops."

"There was a lot of pressure to drive revenue," adds Shawn Gold, Myspace's former head of marketing and content. "There were things that we knew would be more efficient for the user that we didn't act on immediately because it would reduce page views, which would have hurt the bottom line."

The site continued to add users, which disguised a growing unease about Myspace's vision for its future, according to former Myspace and FIM employees. Under Anderson's leadership, the products division introduced a dizzying number of features: communication tools such as instant messaging, a classifieds program, a video player, a music player, a virtual karaoke machine, a self-serve advertising platform, profile-editing tools, security systems, privacy filters, Myspace book lists, and on and on. (Anderson did not respond to an interview request.)

While Facebook focused on creating a robust platform that allowed outside developers to build new applications, Myspace did everything itself. "We tried to create every feature in the world and said, 'O.K., we can do it, why should we let a third party do it?' " says DeWolfe. "We should have picked 5 to 10 key features that we totally focused on and let other people innovate on everything else."

Some ideas, such as classifieds, represented real business opportunities, DeWolfe says, but didn't get enough manpower. Others, such as karaoke, were niche products that diverted energy from less glamorous, more practical concerns. "There were simple things we just didn't execute well on, like address-book importing," he says. "It's a blocking-and-tackling sort of feature that we didn't really have nailed down."

Another recurring problem is that there was not enough of a culture at Myspace of testing, measuring, and iterating. New products were often buggy, making the site slow and difficult to navigate. "Myspace went too wide and not deep enough in its product development," Gold says. "We went with a lot of products that were shallow and not the best products in the world."

Part of the reason Myspace struggled to keep up with emerging technology companies was its site architecture. DeWolfe says that when he and Anderson conceived of Myspace, speed to market was essential. Friendster knockoffs were popping up everywhere. Myspace's founders decided to build the site using ColdFusion, a simplistic programming language. "ColdFusion, even back then, in the engineering world, was thought to be a sort of Mickey Mouse type of technology," says DeWolfe. "But it was so easy to use that we could just crank it out quickly. We blew out Friendster. We blew out Tribe.net. We blew out everyone."

They also created what DeWolfe calls "technology debt." By 2005 the site had outgrown ColdFusion. At that point it was too late to switch over to the open-source-code software favored by developers; changing would have delayed the site for a year or two just as it was exploding in popularity. The easiest move, says DeWolfe, was to switch to .NET, a software framework created by Microsoft.

"Using .NET is like Fred Flintstone building a database," says David Siminoff, whose company owns the dating website JDate, which struggled with a similar platform issue. "The flexibility is minimal. It is hated by the developer community."

The troubles at Myspace hardly went unnoticed by its corporate owners. But the site's continued success muted any alarms that the social media network was on an unstable path. "When you're growing at 300,000 users a day," says Gold, "it's hard to imagine that you're doing anything wrong."


One of the reasons social networks are so combustible is that they have proven to be particularly sensitive to public perception. In February 2006, Connecticut Attorney General Richard Blumenthal announced that he was launching an investigation into minors' exposure to pornography on Myspace. The subsequent media frenzy helped establish the site's reputation as a vortex of perversion. "If you have a teenager at home, odds are they've visited the blog site myspace.com," Hannah Storm warned CBS News viewers in 2006. "And there are fears that this popular social networking website, and others like it, have become places where sexual predators easily prey on children."

Researcher Boyd of Microsoft believes that alarmist press ended up crippling the company. "The news coverage of teenage engagement on Myspace quickly turned to, 'Oh my gosh, there are all these bad teenagers doing bad things and this is crazy!' " says Boyd. "Quickly, it turned into a big narrative about how this was a dangerous, dangerous place."

Pretty soon, attorneys general from around the country were launching investigations into Myspace's safety, which put Myspace on the defensive as the company scrambled to develop basic safety and privacy measures. "Myspace got to a point where they were not innovating technologically," Boyd says. "They were having to do all technical innovations to address the various panics that are happening. Basically their development cycle turned into one of crisis management, not one of innovation." The company eventually signed on to a safety plan with the attorneys general.

In the meantime a group of new, specialized social media companies began targeting Myspace customers. Tumblr offered an eloquent environment for self-expression. Twitter introduced a more efficient way of broadcasting ruminations to strangers. "Myspace had the right idea, where a band would have 900,000 friends," says Kent Lindstrom, the former CEO of Friendster. "That's what became Twitter. Myspace spent all their time working on tools around that, like media players, playlists, video. It turned out you didn't really need all of that."

Mark Zuckerberg's Facebook, meanwhile, introduced more sophisticated tools for communicating with users' real-life friends, through a clean, ad-free interface. "Facebook did a fantastic job of hiding behind the panic around Myspace and basically saying, 'We're totally safe,' " says Boyd.

Myspace's inability to build an effective spam filter exacerbated the public impression that it was seedy. And that, says Boyd, contributed to an exodus of white, middle-class kids to the supposedly safer haven of Facebook—a movement she compares to the "white flight" from American cities in the second half of the 20th century. Myspace was becoming Detroit.

Rob Norman, the CEO of GroupM North America, one of the country's largest media buyers, says perception drove advertisers away as well. "Advertisers, in general, have some difficulty with content and environments that they perceive to be edgy," says Norman. "Especially when the audiences that they value are available in environments that are less edgy."


By the time Myspace's founders sat down with Charlie Rose in 2009, they had been isolated from the rest of News Corp. In the early days, during the honeymoon period, Murdoch had lavished attention on them. Any dispute with their overseers at Fox Interactive was promptly addressed. But after 2007, when Murdoch accelerated his pursuit of Dow Jones and the Wall Street Journal, DeWolfe and Anderson dropped off his list of pet executives. Their contracts were set to expire in October, and negotiations on new deals were going nowhere. The Charlie Rose appearance was a last bid for Murdoch's ear.

Anderson told Rose that, yes, he was glad, looking back on it, that Myspace had done the deal with News Corp. "I'm personally happy," said Anderson. "We got a lot of money. We're happy at that level.

"News Corp. for us has always been easy to work with," Anderson continued. "They respect our opinions, and they let us run the site we wanted to. … They were buying into what Myspace was, and the founders. It's been very good for me. That was my main concern. That it would be taken away from us. And it wasn't."

The following month, Murdoch hired a former AOL executive named Jonathan Miller for a new position, chief digital officer. At the same time, Peter Chernin, the second-most-powerful executive at News Corp., who was based in Los Angeles and had served as DeWolfe's mentor and supporter, announced that he was leaving the company. Suddenly, Myspace found itself without a protector.

In March 2009, according to a former Myspace executive, roughly 10 people gathered in a conference room in the Beverly Hills offices to discuss the direction of the business. The Google search deal was on the verge of expiring. Myspace's chief operating officer, senior vice-president for engineering, and senior vice-president for strategy had just announced they were quitting to form a startup. And it was becoming clear that Myspace's global effort—fueled by extravagant new offices around the world (the Smashing Pumpkins headlined the rollout in Madrid)—wasn't working. Facebook was attracting international users at a rapid rate without the expense of opening offices. Facebook was winning.

In April the Myspace staff received an e-mail from Miller: The founders were out. "I want to take this opportunity to thank them both for their incredible contributions to the Company, and for pioneering one of the greatest social media revolutions of our time," Miller wrote in the memo. DeWolfe was leaving the company but would remain a "strategic adviser," and Anderson was relinquishing his Myspace presidency for a lesser role. DeWolfe maintains that despite evidence to the contrary, Myspace was on solid ground when he left.

Owen Van Natta, who had worked as Facebook's chief operating officer and chief revenue officer from September 2005 to February 2008, became Myspace's new CEO. Jason Hirschhorn, who years earlier had led Viacom's failed effort to buy Myspace, became the new chief product officer. Mike Jones, who had worked under Miller at AOL, was named chief operating officer. DeWolfe was bewildered. "O.K., so you're going to have three guys to run this company that have really never worked together and have really never been on the site and don't really understand it?" DeWolfe asks. "It was a bad decision." (Van Natta and Hirschhorn declined to comment.)

DeWolfe suggests that Murdoch, the brash mogul who has spent much of his life bucking elite culture, ultimately abandoned Myspace because of the perception that it was déclassé. "Part of it might have been the zeitgeist around him," says DeWolfe. "[Murdoch] not being surrounded by the kid playing football in the middle of Texas and all the cheerleaders still using Myspace and the different demographics that Myspace still owned in a huge way."

In the months following DeWolfe's departure, Myspace executives laid off nearly 30 percent of its U.S. staff and 66 percent of its workers overseas.

Morale among those who remained plummeted. Employees were accustomed to working long hours in a relaxed environment at Myspace. On a top floor of the Beverly Hills campus there was a cafeteria where workers were given a generous per diem—enough to eat several meals a day without ever leaving the building. In 2009, News Corp. suddenly raised the prices and cut the per diem, causing an uproar, according to Jason Raich, a social media manager at the time.

To dispel the gloom, Myspace employees bought a slushy machine and instituted Friday happy hours. One day the actor Pauly Shore was wandering through the Myspace offices and was cajoled by Raich into posing with the slushy machine. Pretty soon the photo of "The Weasel" bending down to suck some red brew out of the machine's spigot was ricocheting around the offices and getting posted all over Myspace. It felt for a moment like old times.

When HR caught wind of the photo, however, happy hour was snuffed out, and the staff was forced to sell the slushy machine on EBay (EBAY). It was the final, unglamorous end to a once rollicking era.


In February of 2010, less than a year after joining Myspace, CEO Van Natta left. He was replaced by co-Presidents Hirschhorn and Jones. Four months later, Hirschhorn departed.

Jones recently unveiled a redesign of the site aiming to reposition Myspace as a social entertainment hub. "It serves a very useful purpose, it is highly valued by a core of users—often Hispanic, African-American, often C and D counties, not A and B counties, economically," says Norman of GroupM. "There's an interesting paradox here. My own sense is that Myspace had remained very valuable to a subset of its original community, and in many ways become even more valuable. Yet at the same time it has not managed to translate that into a durable and growing value to advertisers."

Inside News Corp., analysts say Murdoch has turned his focus to his IPad-only news outlet, The Daily. Myspace is yesterday's future. "What happens to newspaper advertising is way more important to the News Corp. story than whether they get anything from Myspace," says Laura Martin, a managing director at Needham & Co. "From News Corp.'s point of view, what happens to Myspace doesn't even matter."

Whoever ends up owning Myspace, DeWolfe wishes them well. "Myspace can be something again, but I think you have to have someone that can really reimagine what it is," he says. "The direction it's going right now is not the right answer."

If, as seems likely, there is no retro revival, former Myspace celebrity Jeremy Jackson says he has no regrets. As a onetime child TV star, Jackson knows better than to cry over lost glories. "As far as Myspace goes," he says, "it is better to have loved and lost than to have never loved at all."

Gillette_190
Gillette is a staff writer for Bloomberg Businessweek in New York.

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