Myspace as cautionary tale

The road from top social networking site to imminent doom is shorter than you think

The news on Tuesday that Myspace is laying off nearly half its staff of 1,000 employees is regrettable for the workers who soon will be out of jobs. But it's hardly surprising. In less than three years Myspace has gone from being the top social networking site in the world to a site desperately trying to survive, never mind regain its relevance. (Also see: Myspace slashes nearly half of staff)

Unfortunately, neither of those outcomes are certain at this point. There are rumors that Rupert Murdoch's News Corp., which bought Myspace in July 2005 for $580 million, is trying to sell the site. I hope they're not counting on getting their investment back, because it isn't going to happen. The mass layoffs come just 18 months after a previous major bloodletting (30 percent of the staff) and just three months after a relaunch designed to reposition Myspace as an entertainment site for Gen Y. From IDG News Service: Myspace CEO Mike Jones tried to put a somewhat positive spin on the (layoffs), saying in a statement that user engagement has improved since the relaunch of the site in October as an entertainment hub for young people. Jones also forecasts that Myspace will now be a more agile and flexible organization that can accelerate product development and foster a culture of entrepreneurship and innovation. I know positive spin is part of the CEO's job, but c'mon. User engagement has improved? Look at those brand new deck chairs we have on the Titanic! And a "more agile and flexible organization" is a stock line companies on the downside have used for years to put a happy face on their shrinking workforce (and prospects). So what happened to Myspace? In a word: Facebook. The company begun in Mark Zuckerberg's Harvard dorm room surpassed Myspace in users by late 2008 and hasn't looked back. Now Facebook has 600 million users and is reportedly worth $50 billion. But there's more to it than that. Myspace had an Achilles heel, one shared by many Internet companies, including Facebook: What it offers isn't essential. Fun? Sure. Entertaining? Yes. Interesting? Sometimes. But who really needs Myspace? Do you know any former Myspace power users who feel a void in their lives now that they've moved on? Do you know any former AltaVista lovers who fervently wish for those heady pre-Google days? Of course not. That's because something better -- or at least preferable -- came along. Plus, the cost of conversion is zero. Why do you think wireless companies force subscribers to sign two-year contracts with hefty early-termination fees? Because they need an artificial barrier to retain customers. They need to create a cost of conversion. With the Internet, however, users simply can just stop showing up. That's something Facebook and Twitter might want to keep in mind. Because the truth is -- unfathomable as this may seem -- we can live without them.

Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.

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