Media: All about ... Google and MySpace

While some analysts' eyes watered when Rupert Murdoch paid $580
million in July 2005 for the user-generated-content site, launched only
three years ago by Chris DeWolfe and Tom Anderson, the media baron has
had the last laugh by more than making his money back in one deal.

While this arrangement covers other sites in the Fox stable such as the
men's lifestyle site askmen.com and the gaming sites Gamespy.com and
Gamespyarcade.com (although it doesn't include FoxSports.com), it is the
community site MySpace that is the prize Google was after. For, despite
its relatively short life, MySpace attracts more than 250,000 new users
each day and last week announced the signing of its one millionth
member. The site that integrates web profiles, blogs, messaging, music
streaming, videos and photo galleries is now the most popular site on
the internet.

Under the terms of the agreement, Google guarantees the $900
million minimum revenue share payments, assuming Fox meets certain web
traffic targets between 2007 and 2010. Google will provide text-based
ads and keyword targeted ads and have the first right of refusal on
display advertising sold through third parties on Fox Media's
network.

So is this a good deal for both parties? From Fox's point of view, it
has made its money back from the MySpace purchase and now has Google to
provide some supporting technology.

As for Google, most agree it will still do well from the deal. Andrew
Walmsley, the i-level founder, says: "At one stroke, Google has gained
huge distribution and it's a kick in the teeth for Yahoo! and MSN, which
must have wanted it badly."

Keeping out the competition is crucial, especially since Microsoft
entered the search market. Rob Horler, the managing director of the
Aegis agency Diffiniti, says: "I doubt that Google has paid over the
odds from its point of view. What Microsoft has to do is build volume
and critical mass and it needs distribution. By signing this deal,
Google has taken MySpace out of the equation and it has given Yahoo!
(which previously had the business) a bloody nose at the same time."

Google has deep pockets to ensure it can put in place as many
commercially favourable deals as possible to maximise its distribution.
Martin Kelly, the media director at Agency Republic, says: "I'm
gob-smacked at the money Google guaranteed Fox, but it is quite adept at
this model - it'll have an average revenue/user figure for each partner.
I think it's been quite generous in terms of the offer to MySpace
because it's such a huge partner and this segment of customer is very
hard to find elsewhere."

The social networking phenomenon is something of a conundrum for
advertisers. While these sites offer huge audiences of young people,
monetising them has so far been harder to achieve. But, increasingly,
brands know online is the way to target 16- to 24-year-olds. They spend
21 minutes a week more time online than the general population (and
watch seven hours less TV), according to Ofcom's Annual Communications
Report. Seventy per cent of this age group have used social networking
sites and more than half of them use them weekly.

Google is fiercely ambitious and this tie-up with News Corp provides it
with further opportunities to develop. Tim Armstrong, the vice-president
of advertising at Google, says of the deal: "As both companies expand
and grow, it's in the deal for us to provide more services. If you look
at the overall News Corp portfolio, the opportunity for us is to add
another layer of advertising relationships they may not have."

From its humble community group-based origins, social networking is now
the pie the media companies want a slice of. Viacom is reportedly
considering a bid for Bebo after it lost out to News Corp in the MySpace
sale. Although Bebo is smaller than MySpace, it would still give Viacom
a further foothold in this youth market and it is rumoured to be willing
to part with $1 billion to get it.

The greatest risk in all this is the audience itself: it is a
notoriously fickle market and who can judge how long MySpace will stay
cool? So while Google agreed to part with these vast sums, the onus is
on News Corp to deliver the audience.

WHAT IT MEANS FOR ...

USERS

- Probably relatively little. "As long as Google delivers a
market-leading, innovative search offering and makes MySpace more
enjoyable, then they won't see it as a problem, they will see it as a
positive," Horler says.

- However, this is the start of commercialisation, albeit of a not
particularly intrusive nature, so it will be interesting to see how it's
taken by users, especially as this audience can be quite advertising
sensitive.

- "Users are tolerant and it's about the old skills the publisher has of
managing the advertising/editorial balance. They don't want to kill the
goose that laid the golden egg," Walmsley says.

ADVERTISERS

- For those that advertise on Google, it is good news as they will now
have the ability to reach people on MySpace.

- There is a worry in some quarters that this makes Google too powerful
and advertisers and agencies are now too reliant on it. Some might have
preferred to see Yahoo! or MSN get the deal so the volume of search was
more evenly distributed.

- The problem for advertisers on these sites is the risk of their ads
appearing near dubious content. But with search, the questionable nature
of the content doesn't really apply - while a display ad could appear
next to porn, for search ads they'll only get displayed next to relevant
searches.

- The opportunities for brand activity with search are limited. "You
will see a spike in search volumes on Google on certain types of
products - there'll be more traffic on ringtones, mobile phones and
other youth areas," Kelly says.