Yes, MySpace can be saved

It's a contrarian view, but if new management takes some risks, the site can be revived.

By Jessi Hempel, writer

NEW YORK (Fortune) -- Things are grim at MySpace. The number of U.S. visitors has dropped off to just 70.24 million in May. Rival Facebook has finally surpassed MySpace, logging 70.28 million visitors. The site is bleeding cash -- News Corp reported an $89 million loss in the unit that includes MySpace in its most recent quarterly report. And on June 16, MySpace laid off 420 employees, roughly 30% of the staff.

But don't give MySpace up for dead just yet. Many tech businesses have stumbled only to be reborn through smart innovation and business execution. Both Apple (AAPL, Fortune 500) and Amazon (AMZN, Fortune 500) floundered and nearly failed before launching the products that brought them success.

MySpace has a passionate user base -- members spent an average of 218 minutes on the site in May. (Compare that to Facebook, on which members spent an average of 149 minutes.)

And News Corp (NWS, Fortune 500) CEO Rupert Murdoch isn't one to accept failure, to put it mildly.

As part of Murdoch's turnaround strategy, he has amassed an incredible amount of old media and new media savvy in his new hires this spring. He brought in former AOL chief Jon Miller in April to overhaul the digital business. By the end of the month, Miller replaced co-founder Chris DeWolfe with a talented triumvirate: Facebook's former chief operating officer, Owen Van Natta, became CEO; former AOL exec Mike Jones became the COO; and Jason Hirschhorn, once the chief digital officer at MTV Networks, took the role of chief product officer.

Already, the new leadership has worked quickly to bring costs down. The staff reduction comes after MySpace decided against a costly office move to Los Angeles' tony Playa Vista neighborhood; the company will attempt to sublet the space instead, recouping the cost of the lease.

Now they must focus on creating a new vision for the site and developing new features that will keep and hold attention. Miller knows this.

As he told an audience at the D: All Things Digital conference in May, "The tendency when you fall behind in product areas is to think that you have to catch up by checking boxes. I think that's wrong. You should leapfrog and focus on emerging behaviors, and go for the big moves."

This will involve a degree of risk-taking that MySpace has long avoided. The site rose to prominence not by identifying new features, but by responding to what its members requested. Many of social networking's most intriguing new elements -- applications, news feeds, and experimental advertising -- migrated to MySpace after bubbling up on competing sites.

"Think about how many times Facebook has pissed off users," explains Charlene Li, an analyst and thought leader who has long covered social networking. "They keep pushing their audience to places they don't always go. They're not always right, but they keep taking tremendous risks."

Miller and team must apply that same innovation to their advertising strategy. With 2008 revenues of $600 million, MySpace has brought in more ad dollars than the other social networks, but it continues to fall short of Murdoch's billion-dollar target for the site.

And as much as half of that amount has come from an advertising deal the company struck with Google (GOOG, Fortune 500) that expires in the fall. Google executives have expressed public disappointment with their returns from the deal, and it's unlikely the terms will be as favorable to MySpace if the two companies renew the deal at all.

MySpace has won over hearts and minds before. It was, after all, the first social networking site to rise to international prominence -- it has close to 130 million members globally -- and it introduced the concept of creating a social networking profile to a good portion of the world. With sharp minds and deep pockets, Miller, Van Natta and the team have little doubt the site can do so again. To top of page

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