Myspace, the Sequel

With Facebook surging, cofounders Chris DeWolfe and Tom Anderson have gone back to their roots — music, pop culture, and a proven cash-flow ad model — to spur a next phase of growth. Will that be enough for boss Rupert Murdoch?

Myspace, the Sequel
"Social Network" is so 2005. MySpace Cofounders Chris DeWolfe (left) and Tom Anderson are calling their site a "social portal". | photo by Jill Greenberg "Social Network" is so 2005. MySpace Cofounders Chris DeWolfe (left) and Tom Anderson are calling their site a "social portal". | photo by Jill Greenberg

Chris Dewolfe, the lanky, shaggily hip CEO of Myspace, is holding his last meeting of the day from a prone position, a collection of long limbs stacked on a tiny red love seat. The early evening powwow, taking place in the cramped office of his senior communications director, is interrupted when I come crashing in to say good-bye.


DeWolfe can be forgiven for putting his feet up. Along with cofounder and MySpace president Tom Anderson, he has lived through a lot of long days lately — about four-and-a-half years’ worth since the site first launched. In fact, a slight defensiveness hangs in the air here about the site’s age. Not that it is too old, but rather that it is younger than most Web watchers seem to remember. Everyone I talk to at MySpace HQ in Los Angeles, from DeWolfe and Anderson on down, mentions the four-and-a-half-year figure, as if to remind me that their biz is only a month older than their chief social-networking competition, the upstart some 350 miles to the north, Facebook.

It’s understandable that the MySpace folks would feel a little slighted by all the attention Facebook has been getting. It was MySpace, after all, that grabbed headlines in 2005 when Rupert Murdoch’s News Corp. acquired it for $580 million. It was MySpace that proved social networking could be a mass medium, attracting 10 million users, then 20 million, then 50 million — prompting Murdoch to crow about its “meteoric rise” — back when Facebook was still a college-focused niche player. Yet over the past year and a half, Facebook has quickly gained traction and fans, its fresh-faced CEO piling up TV appearances and magazine covers (including Fast Company‘s in May 2007). Suddenly, Facebook’s worldwide user base surpassed MySpace’s in size. Then on June 30, MySpace’s financial reputation was dinged when Fox Interactive Media (FIM), the News Corp. division that houses the site (along with Photobucket, Fox Sports Interactive, and other properties), closed out its fiscal year without hitting its revenue target.

I visited the next day, but the MySpace management team wasn’t talking about numbers. It certainly wasn’t talking about Facebook. Instead, DeWolfe, Anderson, and four other senior staffers — including chief technology officer Aber Whitcomb, hired by DeWolfe “nine years and four companies ago” (he built the original MySpace site in 30 days) and 27-year-old chief operating officer Amit Kapur — spun out a vision of unwavering ambition and optimism. Hey, did we mention that we’re profitable? And that we have 115 million monthly visitors worldwide? That we’re outpacing Gmail and Hotmail in messages sent? And giving YouTube a run for its money in video downloads?

During my rounds at the offices — which will be traded in next June for a new 300,000-square-foot FIM facility in Playa del Rey, which the company claims is the biggest real-estate transaction in L.A. in 25 years — the crew opened up about the pros and cons of working for Murdoch. They also laid out a dizzying array of new initiatives, from an imminent site redesign to major marketing alliances with big-name brands. They practically strutted about an unprecedented new foray into the music business, set to be rolled out in early fall, and revealed that MySpace is no longer a social network at all, but — wait for it — a “social portal”: a global, content-rich hub with a social component. The MySpacers weren’t shy about touting the advantages they feel they have over Silicon Valley stars such as Google and Apple. They weren’t shy about much of anything, actually (except their own ages, which DeWolfe and Anderson wouldn’t confess). In their view, they have come farther, faster than almost anyone these days gives them credit for. In many ways, they are right.

Several hours before DeWolfe’s collapse on the love seat, I sit down for lunch with him and Anderson in a sunny corner conference room. Anderson arrives late and inhales a steaming tin of cheesy Mexican goodness before beginning to speak; DeWolfe picks at a salad, then abandons it to better connect and chat. He is an easy talker, radiating an “I’ve been everywhere, man” vibe in the best sense — cool, calm, with a low center of gravity. It seems odd, sitting with them, that Anderson is the more famous of the two. He is everyone’s first “friend” upon joining MySpace and has become the de facto face of customer service, routinely alerting users to changes and problems through his MySpace blog. He’s also a formidable pollster: When he asks members for feedback, he has been known to get some 20,000 responses — in under 10 minutes. Anderson has 237,991,950 friends on MySpace as of my visit; DeWolfe has barely 200. “I keep a lower profile,” DeWolfe says simply.


The two men talk about their roles in the company. “I’m the one who’s more of a jerk,” says Anderson, pushing aside the wreckage of his meal. “I seem quiet. But when I get upset, I talk too loudly. I’m sort of an alarmist.” He laughs, while a slow grin creeps across DeWolfe’s face. “Chris is able to calm everybody that I upset in my outbursts.”

It quickly becomes clear why DeWolfe is the CEO, the one who works with advertisers and sponsors, cutting the deals that bring in the money. “I have a very negative attitude toward business and businessmen,” Anderson says, a little too loudly. “I wouldn’t really fit in a corporate structure if Chris weren’t there to shield me from it.”

Both founders are full of pride for the business they have built — and are still building. They see the recent revenue-growth shortfall as merely a distraction from the real news: the absolute performance MySpace delivers. “There are only three or four companies in the world that have our type of reach,” says DeWolfe. FIM may have missed its whopping, Murdoch-mandated $1 billion revenue target in June, but the unspoken defense is that MySpace alone contributed the vast majority of the $900 million that did come in. That’s three times even the most optimistic estimates of Facebook’s performance (although as a private company, Facebook does not release financials).

MySpace seems too adolescent — too ADD — to be such a money machine. But when you peel back the beeping, blinking veneer of its user interface, the site’s underlying business model is surprisingly muscular. MySpace was conceived in the overripe petri dish of the Los Angeles entertainment and music scene, where creativity is prized and voyeurism of all kinds is considered a perfectly normal way to have fun. If the highly earnest Facebook emphasizes the efficient sharing of personal information and labors mightily to make sure that people are who they say they are on the site, MySpace has always had a looser vibe, setting users free to be a more stylized — even fictionalized — version of themselves. And if Google craves an organized world to help you find what you seek more effectively, MySpace wants you to stumble around and discover things you didn’t know you were looking for. In fact, MySpace’s business depends on that kind of serendipity and the commercial juices that swirl around it.

“Social Network” is so 2005. MySpace Cofounders Chris DeWolfe (left) and Tom Anderson are calling their site a “social portal”. | Photo by Jill Greenberg

Overall, the two founders insist, life is good in the house of News Corp. “I don’t think you can name one company that was acquired where the founders were still there after three years,” says DeWolfe. Anderson agrees: “We’ve never felt cornered or pushed into something we didn’t want to do.” But clearly having Murdoch, along with News Corp. COO Peter Chernin, at your elbow can be a complicated experience. “When we told Rupert we had launched in the U.K. and were planning on three more international markets,” DeWolfe recalls, “Rupert said, ‘Why not make it 13?’ ” DeWolfe asked for more staff and had a toehold in 13 countries about 60 days later. (MySpace now operates in 29 countries.)


Murdoch and Chernin both approve every MySpace budget and weigh in often — sometimes to jarring effect. At the All Things D conference last year, Chernin publicly admired Facebook. “I find it a bit more utilitarian than MySpace,” he said, adding that MySpace has always been a “chaotic environment where anything goes.” Then interviewer Kara Swisher recalled News Corp.’s controversial April 2007 banishment from MySpace of popular photo-and-video application Photobucket, which had been embedding advertising in its own product. Chernin replied, “We would not allow anyone else to create an advertising platform on our backs,” a common practice on Facebook. Widget developers in the audience — who had been waiting to do just that at MySpace — were not amused. (FIM later bought Photobucket for a rumored $250 million and opened up its platform this past February.)

Murdoch, for his part, has a habit of popping in at MySpace — by phone or in person — largely unannounced. Jeff Berman, a long-ago D.C. public defender whose unlikely career led him to become MySpace’s president of sales and marketing, points to the couch in his office and tells me, “Last time Rupert was here, he sat right down, put his feet up on the coffee table, and just asked me what I was doing.” Berman answered. “Then he asked me why I was doing that instead of all the other things I could be doing.” On another visit, Murdoch wandered over to a junior developer, pulled up a chair, and got an impromptu lesson in coding. “He was so inspired that Rupert took such an interest,” says the kid’s boss, senior vice president of technology Jim Benedetto, “that he basically didn’t leave the office for four days.” Inspiration and fear. Such a fine line.

Whatever role Murdoch may play in motivating them, Anderson and DeWolfe know that if they’re going to hit their revenue numbers going forward, they need to better exploit MySpace’s strengths over the competition. In June, for example, Anderson and DeWolfe created an aggressive new “takeover” feature on their home page, which gets some 45 million views a day — a shiny bit of advertainment offering marketers a “more creative palette” with which to burn their messages into users’ skulls. “You can own the page, whether you’re McDonald’s, Taco Bell, or Sony with Hancock [the recent Will Smith vehicle],” says Berman. “Our users look at you as content, while you’re slapping them in the face with this incredible brand message.”

DeWolfe and his team have brokered a series of increasingly sophisticated marketing deals over the past several months that tap the site’s music connections and point to the kind of leverage it can bring to bear. When McDonald’s wanted to revive its classic “two all-beef patties” jingle, for instance, MySpace quickly wrangled up-and-coming talents in a range of genres to create their own versions, then opened up a contest for user-generated versions, including videos. For State Farm, which was looking to connect with younger customers, MySpace hooked the insurer up with a summer concert series called Projekt Revolution starring Linkin Park and other bands. The campaign runs many levels deep: from a branded presence at the concerts; to a sponsorship of the Projekt Revolution concert site, complete with live-concert footage (and no State Farm logos in sight); to a lightweight gaming site; to a strictly business State Farm site that can connect a Linkin Parker with an insurance agent.

These new marketing efforts are part of the push toward reframing MySpace as a social portal. “Some 90% of online-advertising spending goes to big portals,” DeWolfe says. “A much smaller chunk of money goes to more experimental buys or social media.” That narrower definition is apparently not how MySpace wants to be seen anymore. “Now that we have such massive traffic on a daily basis, we’re competing against Yahoo and MSN and to a smaller degree AOL,” DeWolfe says. “And we’re now in almost every single advertising proposal.”


Anderson and DeWolfe say that while Google may dominate the search market, it isn’t close to MySpace in terms of detailed information about what users do and consume — the holy grail of targeted marketing. MySpace’s social-advertising initiative, called HyperTargeting, launched about nine months ago, and is its version of the “we know who you are and what ads you’ll like” voodoo. “Click-throughs on these ads are up 300%,” DeWolfe says. (The bad news: A newly social iGoogle debuts this summer, complete with personal news feed and gadgets that operate on OpenSocial.)

MySpace has other portal-like tools, too: At about 60,000 uploads a day, it is becoming a popular alternative to YouTube. (MySpace had some 55 million unique video viewers in May 2008, according to comScore Video Metrix, versus 82 million for YouTube.) Aside from user-generated videos, MySpaceTV has a huge universe of professional-grade content, from Fox shows such as The Simpsons; to mini-episodes of ’80s sitcoms; to National Geographic programs; to an election site called MySpace Impact, which offers broadcast coverage from MSNBC and NBC. Early on, MySpace developed its own distributed “content-delivery network” for some of its video, “which really reduced our long-term costs,” says CTO Whitcomb. That, no doubt, is something Murdoch appreciates.

But DeWolfe and Anderson consider the music business to be their ripest opportunity. About nine months ago, with 10 senior staffers in tow, they held a daylong off-site in L.A. to map out their future. They came away with a heady list of priorities: a significant site redesign, the long-awaited developer’s program, and a beefed-up mobile business (an iPhone application debuted in July).

Music, though, quickly bubbled to the top of their to-do list. “When we first started MySpace, we were a site that a lot of bands, tastemakers, and influencers immediately gravitated to,” DeWolfe recalls. For musicians trying to make a deal with a major label, or just fill up a venue, it became a perfect way to self-promote and digitally mingle with fans. (We can thank MySpace for accelerating the careers of Lily Allen, Sean Kingston, the Arctic Monkeys, and Dane Cook, among others.) But that area of strength had been allowed to atrophy. As DeWolfe says, “We hadn’t innovated much around the music portion of MySpace in about three years.”

After the off-site, DeWolfe put in a call to famed record producer Jimmy Iovine of Interscope to bat around ideas. Back in 2005, MySpace had partnered with Iovine to launch its own label, MySpace Records, which was set up to identify and recruit unsigned acts using the site. Iovine’s unexpected but inspired suggestion: Call Doug Morris. “If you want to get into the business, you have to get Doug,” says Iovine. The CEO of music label Universal, Morris was a most unlikely ally at the time — his company had a nasty copyright-infringement lawsuit pending against MySpace. But Morris also had another thorn in his side: Steve Jobs. Just a few months earlier, Morris had convinced two other major music labels, Warner and Sony, to try an end run around iTunes by launching their own subscription service. That effort had foundered, in part because of serious rumblings of antitrust concerns. As an outsider, DeWolfe had an opportunity to broker an agreement without triggering legal problems. The day after talking to Iovine, he got on a plane and flew to New York to meet Morris.


Morris listened. And over the ensuing months, DeWolfe and his team managed to bring Warner and Sony back into the mix, in a joint venture called MySpace Music. (Along the way, MySpace settled the Universal suit, coughing up a rumored $100 million.) On the face of things, the venture — which was slated to launch in September but at press time had yet to name a CEO — will offer the major labels their best hope for a significant competitor to Apple’s iTunes store. DeWolfe is quick to say that isn’t the point. “We didn’t set out to annoy Steve Jobs or compete with him,” he insists. “This was not conceived as an iTunes killer.” Anderson points out that iTunes itself isn’t much of a moneymaker, anyway: Apple is really a hardware company, not a media company, he says, even if iTunes does control about three-quarters of the digital download market. And Jobs has burned a lot of bridges with the labels, especially over his reluctance to embrace variable pricing — charging more for newer or more popular music. MySpace may not want to kill iTunes — it says its music site will actually boost iPod sales — but the labels wouldn’t cry if it happened.

Although technically a separate company, MySpace Music is very much DeWolfe’s baby, and its CEO will report to a board that reports to him and Anderson. The new site promises to let people listen to and share streaming songs from a full catalog of music for free, as MySpacers do now with video — but also create playlists and buy ringtones, merchandise, and concert tickets. And of course, buy music. The majority of MySpace Music’s tracks will be offered without digital-rights management, which will allow them to play on an unlimited number of devices, including the iPod. And expect variable pricing. The idea is to create an environment where people will buy more music rather than steal it.

Bits and pieces of MySpace’s music model can be found in other places — such as iMeem, Pandora, iLike,, Live Nation, and, yes, even Facebook. But once you factor in MySpace’s distinctive mix of entertainment content and social-networking power, the proposition gets more interesting. As Michael Nash, EVP of digital strategy and business development for Warner Music, puts it, “Unlocking the social value in the context of an online community is one of our most important priorities.” Nash, who is on the board of the new venture, worked with MySpace in its pre-Murdoch days, developing promotions with acts including REM. “About 20% to 30% of total traffic on MySpace is music traffic,” he says. “We saw that lightning in a bottle, the social interaction around music and fans.”

For Nash, the MySpace deal may be just the thing to save the music industry from destruction, at least for a while. “The traditional music model has really already sort of expired,” he admits. “We were seeing tremendous value in our content, but not a lot of revenue being developed.” The dream: As users begin to organize music they like into streaming playlists that can be shared with friends (and that other users can vote up, Digg-style, or subscribe to), the computer becomes a community-generated radio. Supported by advertising. And with the already existing MySpace swirl around celebrities and events, the industry envisions hordes of fans flocking to concerts, which are much easier to profit from. “We needed a completely different business model to unlock that value,” Nash says. He admires DeWolfe and the MySpace team for uniting competitors into a venture benefiting all. Rupert’s bags of cash didn’t hurt, either: “That News Corp., a major media company with deep industry knowledge, has been there to monetize all of this really deepened our commitment.”

As for the potential competitors, such as iMeem, who have built their businesses partly on the social networks — and have helped establish them as music destinations — Nash is coy. “You can assume that we’re in discussions with all the significant players in the space, including Facebook, YouTube, iMeem.” But, he says, “it’s a competitive world. There’s going to be some overlap, but you’re not going to see a lot more joint ventures.”


MySpace has always had its share of controversy — from disputes over ownership and valuation in the wake of the News Corp. deal to digs from tech purists about the, um, aesthetic variability that comes with letting people decorate their profiles with blinking, shiny things. Continuing problems range from the annoying (spam and service complaints) to the very serious (privacy and child-safety concerns).

For all the bravado and new ideas, MySpace still has significant challenges. Foremost among them is the relentlessly evolving Facebook, whose most recent comScore numbers show it widening the gap on MySpace to nearly 10 million worldwide visitors in May — 124 million for Facebook versus MySpace’s 115 million. And Google has no intention of ceding the social-portal space to the networks without a fight. Expect Steve Jobs to be an irritant, too. True, digital downloads accounted for only 10% of music sold last year, according to In-Stat, but while it may have its shortcomings, iTunes is deeply entrenched in the culture and will be hard to dislodge. ITunes has sold more than 4 billion songs since it was born (just a few months before MySpace) and today accounts for approximately 70% of digital music sold worldwide. Apple even dipped a toe in the social music market in 2007 with MyiTunes, a widget that lets customers share reviews and music on their Web sites or blogs.

And if it’s obligatory to sniff a bit at Facebook for focusing on technology first and monetizing second, the opposite problem exists at MySpace: DeWolfe and Anderson have some real work to do on their site’s architecture. “It’s a big priority for us,” says senior VP of product strategy Steve Pearman, a good-natured techie who walked me through the redesign plans as I worked my way through a huge tub of Twizzlers on his desk. He concedes the site has become a chore to navigate and laments an interface that was simpler once upon a time, before links and products barnacled on as the site rushed to grow. “How the hell did it end up looking like this?” he asks in all seriousness. “This is a terrible design!” Site improvements have already begun to appear, like a tabbed navigation bar to help shape the chaos. (Sort of like Facebook’s tabbed redesign.)

As our lunch winds down on yet another endless summer day in Los Angeles, Anderson and DeWolfe take the time to wax philosophical over management and business in a noisy, competitive world. “We are a company that needs to move fast,” says Anderson. Products need to be tweaked, sponsors need to be pushed to promote themselves in new, sometimes uncomfortable ways. Referring to himself, Anderson says there’s an indispensable role for the gadfly: “It always helps to have someone who can say, No, we can do it faster this way, or We have to break the rules, even our own rules, to get things done.” Break any rules lately, Tom? “There was something yesterday, actually.” Anderson laughs, then shakes his head, “I better not go into any details.” DeWolfe nods at his friend, flashes a half-smile, then slowly spins his chair to look out the window. “Some things are better left to the imagination,” he says.

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