Jul 07, 2011
Table of contents:
Myspace have recently announced that they have been acquired by Specific Media from Rupert Murdoch’s News Corp for a reported $35 million. This coming just 6 years after Mr Murdoch purchased Myspace for $580 million. How can the hottest property on the Net go from $580 million to a $35 million valuation? In this post I will be looking at the rise and fall of previous “Internet Giants”, offer an analysis of what went wrong, and make predictions for what I think the current crop of hot prospects need to do in order to avoid a similar fate.
Leading up to, and for a few years after News Corp’s acquisition, Myspace was truly the hottest destination online. Myspace was the go to site for a generation of youth. From launching music careers to an unparalleled opportunity to advertise to the masses, the acquisition of Myspace was seen as a good bit of business by Mr Murdoch, so what went wrong? The reasons for Myspace’s demise are numerous. Miss-management, incorrect growth strategy and the inability to evolve are just some of the possible reasons for Myspace’s fall. The rise of Facebook as a new, fresh network for the College generation was certainly a nail in Myspace’s coffin. But Myspace was the destination for hot new music, how could it drop the ball on the niche it was dominating so well? Increasing pressure to monetise the site after its acquisition and the inability to evolve to create a better product away from the user designed mess that Myspace had become ultimately finally pushed the social network over the edge. Myspace also suffered the bloat problem of the start-up chasing users. Instead of focusing their attention on 5 key killer features, Myspace tried to be everything to everyone, releasing half baked ideas and poor execution, but for every big swing, Myspace whiffed. Even after the redesigned, re branded Myspace launched, regaining a user is 100x harder than convincing the user to sign up in the first place. Myspace’s fall is a harsh reality check to today’s consumer web businesses.
For many American’s, AOL was their first experience of the Internet. AOL was a family friendly portal that allowed their users into their walled garden of content and email. AOL was also one of the pioneering forces behind Instant Messaging with their AIM service. But many users quickly wanted to explore the Internet and what lay outside the walled garden. AOL become known as a restrictive service that controlled what the user had access to. It was really the first case a net neutrality, and users revolted. Even the mass production of free AOL trials CD’s become a point of mockery for the Internet giant. In early 2000, AOL announced that they were acquiring Time Warner, the media behemoth that owned CNN, Warner Brothers and Sports Illustrated brands. But over the next few years, and the huge growth of broadband, AOL and their user content portal quickly got left behind. AOL were charging for services that other ISPs offered for free and were quickly seen by the masses as a company to avoid if you wanted the real Internet experience.
Yahoo! was founded by Jerry Yang and David Filo in January 1994 and quickly grew to one of the hottest properties online. Yahoo’s rise and fall is littered with missed opportunities, missteps and a number of poor decisions that have ultimately cost the company over the years. During the rise of Yahoo! they acquired every smaller hot Internet prospect including GeoCities, Flickr and Delicious to name just a few spending billions in the process. However as the stock of Yahoo! increased so did the optimism that Yahoo! were doing everything right. However despite the acquisitions, Yahoo! missed the big opportunities that would shape the future of the Internet. Firstly Yahoo! created their directory of the Internet’s websites rather completely missing the search engine revolution that Google was creating. By the time Yahoo! finally got into search, they were already too far behind. Secondly Yahoo!’s email service got completely obliterated by Google’s GMail after it launched. GMail was the new cool way to do email that was free and offered a much greater storage space than Yahoo!’s paid service. Yahoo!’s investment in GeoCities, Delicious and Flickr amongst others have not been good acquisitions, whilst they passed up the opportunity to buy Facebook and Youtube. Also Yahoo!’s inability to innovate their own products and stay ahead of the curve meant that the likes of Google and Facebook quickly overtook the Internet giant.
It’s never safe at the top and two of today’s hottest Internet properties are perched right at the summit. Facebook and Zynga have both risen hand in hand to the top of the consumer web. Both are set to IPO in the coming future, and so far both have been generating revenue. But how do they ensure that they stay at the top?
Facebook’s growth has been phenomenal over the last couple of years. Through advertising and their partnership with Zynga and Facebook credits, Facebook is finally generating revenue. When Facebook IPOs at the start of next year for a rumoured $100 Billion, the actual fiscal health of Facebook will be revealed. Facebook has also had some controversy with reports that user numbers are dropping as well as new competition from the recently launched Google+.
Putting the revenue side of Facebook to one side for a moment, Facebook needs to concentrate on the future evolution of their product and where it stands in the social graph of its users. Facebook needs to make their platform the backbone of communication and the organisation of its users digital lives. Losing that vision, or allowing a rising new product to shadow them will be disastrous for Facebook. We’ve already seen how the unstoppable super giants can be knocked down by a rising contender. Recruiting the best engineering and design talent available is a big step in the right direction, but allowing people like Dave Morin amongst others to slip away could also be disastrous for the future of the company.
Zynga have had an equally epic rise to the top of the social gaming industry holding tightly to the coat tails of Facebook. Zynga have generated profits through their virtual goods business model and recent valuations have put Zynga ahead of gaming giants like Electronic Arts. But Zynga’s gaming model is getting old. In order to continue to prosper and to ensure itself against Facebook losing traction, Zynga must innovate the social gaming model and push it to further levels of engagement that don’t rely on the same old techniques. Zynga must find a new game with a new model and quickly or they will face the same fate as previous Internet super giants that had success but slowly crumbled back down to Earth with the inability to innovate more than once.