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Business – MySpace’s Disruption, Disrupted

Scott Anthony

In 2005, Rupert Murdoch was the toast of the media world. News Corp’s septuagenarian CEO had swooped in and picked up social networking darling MySpace for a price ($580 million) that seemed steep but not outrageous. Months later, MySpace signed a massive deal with Google, justifying Murdoch’s optimism. Growth surged. Seemingly overnight, Murdoch went from crusty old corporate titan to hip new media king.

Four short years later, however, MySpace’s shine has dulled. Upstart Facebook has blown past MySpace to claim dominant leadership in the social networking space. MySpace’s market share has dropped from 66 percent of all social networking users in 2008 to 30 percent in 2009.

An article last week in the Financial Times describing MySpace’s malaise highlights important lessons for managing disruptive innovation.

When News Corp acquired MySpace (technically, MySpace’s parent company Intermix), it sought to give its new venture a high degree of autonomy. However, it had MySpace report to an executive — Ross Levinsohn — whose vision for the company differed from the founding team. Levinsohn hired a team to speed integration and begin to upgrade MySpace’s underlying technology.

According to the Financial Times, MySpace’s founders continued to encourage rampant experimentation, which frustrated the News Corp executives who were used to more disciplined execution. “Every time we tried to professionalize the place they resisted,” Levinsohn said.

In 2007, News Corp told analysts how the business was poised to get to $1 billion in revenue by 2008. How was MySpace going to hit that number? It had tremendous amount of traffic that looked attractive to advertisers. So it naturally increased the number of advertisements per page and shut down innovation efforts that would reduce page counts, even if they increased user loyalty.

Growing advertisements, however, began to irritate users who felt inundated by ads. They began fleeing MySpace and joining Facebook.

It seems that MySpace is an example of a company that suffered from the seemingly sensible desire by News Corp to set a strategy, focus on execution, and achieve rapid growth. Why is that desire potentially deadly for disruptive innovation? Remember, it often takes a few twists and turns before a disruptor figures out the right business model. The push for quick growth can shut off the good experimentation that can allow the right business model to occur.

MySpace was all of two years old when News Corp acquired it. If you figure in today’s world a business model has a natural life of about 20 years, MySpace was the equivalent of a pre-teen. Imagine imposing rigor and discipline on a 10-year-old that has not yet found themselves. Most parents would suggest that is not a recipe for success.

Of course, not all experimentation is good — it is possible that claims that the MySpace team just wasn’t up to the task have merit as well.

As Facebook has remained privately owned, it has been able to soften the siren’s song of quick growth. It has experimented with a number of different business models, such as tying recommendations to advertising. It still isn’t clear that Facebook has found the winning formula, but its experimental mindset gives it a great chance of success.

The disruptive manager needs to continue to encourage experimentation while avoiding pressure to have a business get too big too fast. Pushing for quick growth leads to premature business model lockdown, which as MySpace shows, can be troubling.

The social networking game is certainly not over. MySpace still has 100 million users, many of them relentlessly loyal. The winning social networking business model still isn’t entirely clear. If Murdoch and his leadership team find a way to loosen the reins enough for MySpace to iterate towards a winning model, perhaps there is a comeback story waiting to be told.

December 18, 2009 - Posted by | Uncategorized |

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