MySpace May Face Huge Layoffs


The faltering social network site MySpace may be considering a huge downsizing, according to the Wall Street Journal. "One person familiar with the matter said the site could lay off between a third and a half of its roughly 1,100 employees," the Journal reported. The Wall Street Journal is owned by News Corp (NWS), as is Myspace. It is no surprise, then, that the paper was the first to report the possible layoffs. There have also been rumors that MySpace is for sale.

It is an irony that the news about MySpace should come the day after Facebook raised $500 million -- most of it from Goldman Sachs Group (GS) -- in a deal that values the Internet company at $50 billion. Less than four years ago, MySpace was the clear leader in the social network business.

News Corp bought MySpace in 2005 for $580 million. The buyout was hailed as a brilliant move by News Corp CEO Rupert Murdoch. It allowed him to get a huge foothold in the Internet. Shortly after the transaction, MySpace got a $900 million search advertising deal with Google (GOOG). Wall Street noted that MySpace had already paid for itself.

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MySpace quickly lost ground to Facebook, however. Comscore, the online research firm, reported that MySpace had 54 million unique visitors in the U.S. in November, while Facebook had 152 million and is now the most visited site in America.

Why did Facebook's popularity soar while MySpace's fell? Some experts say that Facebook is preferred by a younger audience that is more active on the Internet. Others say that Facebook is a better-designed site that is easier for "members" to use. Whatever the reason, the demise of MySpace shows that there are no prizes for second place in the social networking economy.

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