Murdoch's New Startup Incubator

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Traffic Numbers Stagnant

Konstantin Guericke, CEO of Jaxtr, a software company that created an application to link users' social-network profiles to their cell-phone numbers, says SlingShot could help MySpace recruit developers who can make its site more engaging. "Clearly they got it right with profiles and self-expression," he says. But MySpace "totally missed the boat" on building features that let teenagers use add-on software to track one another's activity online. "MySpace has always been more of a media company, and Facebook has been more of a software company," says Guericke. "I don't know how well [SlingShot is] going to work, but it's a good thing for them to try."

To be sure, MySpace is still one of the Internet's most popular hangouts. The site attracted nearly 69 million unique visitors in December—nearly double Facebook's 34.7 million—according to market researcher ComScore (SCOR), and MySpace says it's adding 300,000 users a day. Sales at Fox Interactive Media, the News Corp. unit that contains MySpace, surged 87% in the final quarter of 2007, primarily because of ads on MySpace.

Yet the December traffic number was down from nearly 72 million unique visitors in October, and the amount of time users spend on MySpace has fallen as well. (Facebook's traffic, by comparison, grew from 33 million in October.) There are also signs that ads on social networks are becoming less effective (BusinessWeek.com, 2/4/08). And investors in Internet companies are concerned about the overall health of the online advertising market as the U.S. economy worsens. "You're going to see it slow down," says David Siminoff, a general partner at venture capital firm Venrock Associates.

In the Works

To keep growing, MySpace is recruiting users and advertisers in new markets. Offices in Beijing, Mumbai, Moscow, and Istanbul are slated to open by April. Closer to home, MySpace's six-month-old Seattle office has grown to 50 developers, including several engineers poached from Microsoft (MSFT). That could give the company more mojo in the software world.

A redesign of the MySpace site due by May aims to expand the site's appeal by giving users the ability to categorize their friends, close friends, family members, and work buddies so they can specify which groups can see which portions of their profiles. Also in the works are applications to let users read Google (GOOG) Gmail messages and perhaps even receive updates from their Facebook accounts while on MySpace.

DeWolfe & Co. won't get specific about what projects they're incubating with SlingShot but say they'll focus mostly on social networking, including software designed to work with Facebook's site. Even though the venture is in Santa Monica, Calif.—near MySpace's offices in Beverly Hills, not Silicon Valley—SlingShot co-President Digiaro says he wants to create the feel of an Internet startup. "We want the open environment and high ceilings and cement floors," he says.

Ricadela is a writer for BusinessWeek.com in Silicon Valley.