When Google ponied up $900 million this week for exclusive rights to provide search and keyword advertising to Fox Interactive Media, it set tongues wagging. How did News Corp. and FIM answer the question of how to make money off of MySpace? By making it Google's problem.
But Google has much to gain from the partnership. The search deal could be the first of many linkups between the two companies that could see MySpace evolve into a full-fledged Web 2.0 e-commerce platform.
"Wherever there are a lot of users and a lot of growth, there's an awful lot of opportunity," Google CEO Eric Schmidt said in an August 7 conference call with News Corp. executives to announce the search deal.
MySpace has already moved well beyond its roots as a way for people to meet other people and for unknown bands to find an audience. Large companies such as Toyota, Disney and Verizon have advertised there, and thousands of smaller businesses have created free profile pages. Some eBay sellers have MySpace profiles pointing to their auctions.
MySpace doesn't currently have an e-commerce platform, but it could in the near future, thanks to Google. New products such as Google Local and Google Checkout are crying out for an audience and MySpace could be a convenient place to give them a big push: Local businesses could offer a seamless way for MySpace users to find their retail storefronts using Google Local, or they could simply handle online transactions with MySpace users by using Google Checkout.
(On the other hand, the deal with MySpace is also a tacit admission that Orkut won't be a player in this space.)
Plenty of people are asking how the deal will impact MySpace ad revenue. The answer is that for 2006, there will be no material impact, since the payments do not start until 2007. eMarketer estimates that MySpace will generate $180 million in US ad revenue this year, two-thirds of total revenue in the social networking category.
As for succeeding years, News Corp. executives stated in an Aug. 8 quarterly earnings conference call that less than 10% of the $900 million guarantee is earmarked for 2007. That leaves around $810 million to be divvied up over 2008, 2009 and the first two quarters of 2010. And that's assuming Fox Interactive Media makes its minimum targets – both companies believe the upside will be far greater.
eMarketer estimates that US social network ad spending will rise to nearly $1.9 billion in 2010, from $280 million in 2006. With the Google/MySpace deal, ad revenues at MySpace may top $1 billion as soon as 2010.
Worldwide social network ad spending is expected to rise to $2.5 billion in 2010, from $350 million in 2006.