Massucci's Take: MySpace problems may spread to Facebook, Twitter

MySpace founders have been pushed aside and there is speculation layoffs are coming.

As Facebook and Twitter watch what's happening at MySpace, they should be worried and heed the warning of potential problems to come. Social-networking sites grow like weeds and, well, die like weeds too.

Twitter is the fastest growing networking site right now. Facebook is number two. MySpace, on the other hand, is seeing its audience decline and may have to fire employees.
When the growth of a social-networking site slows, you don't need as many workers anymore. If a large corporation buys a smaller company, there's the danger that the creative input of its founders will no longer be needed. That's what's happening at MySpace and it's bound to happen at Facebook and Twitter down the road.

My Space is preparing to lay off 25 percent or more of its staff, after laying off five percent last year, TechCrunch reported this week. "Like any company with new leadership, Fox Interactive Media is reviewing every aspect of our operations, performance and structure," a Fox Interactive Media spokesman told DailyFinance in an e-mail.

That doesn't sound good. Certainly from the outside, it looks like Facebook and Twitter should take any buyout offer now and worry about growth and revenue later. Of course, that's what MySpace did and look at what the company is facing.

No matter how fast the growth, social networking sites can go from hot to cold almost overnight. Friendster is a good example. MySpace has lost one-third of its audience, except for video use, from April of last year to April of this year, according to Nielsen Online, which measures Web audiences.

"One of the challenges with running one of these large social networking sites is you are always trying to figure out what it is that people want and then balancing that against how do you make money off it,"
John Riedl, a professor of computer science at the University of Minnesota,told the Minnesota Daily.

At this point the founders and executives at Facebook and Twitter could take a buyout offered by Google (GOOG) or Microsoft (MSFT) and hope they are given the freedom after being acquired to continue to grow their services.

As exciting as it must be for these executives to be working at these companies as they grow quickly, there's cause for concern. Grow too fast and the costs can't be contained. Grow slowly and you are in danger of becoming irrelevant. Take a buyout and you likely lose control. Decline buyout attempts and take the risk that there won't be enough money or revenue to help sustain future demands.

"We have to put the product and the service that we're building first," Twitter co-founder Jack Dorsey said in an interview with DailyFinancelast week.

That's the right approach for Dorsey and his team now. What, though, is the right approach later?

Anthony Massucci is a senior writer for DailyFinance. You may follow him on Twitter at hianthony.
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