Back in July 2005, the deal seemed so promising. Rupert Murdoch's News Corp. (NWS) bought MySpace parent Intermix Media for $580 million. It was, by some measures, the fifth most-visited website in the U.S. then, and the largest social media company in the world. But on Wednesday, MySpace was sold for a reported $35 million to advertising network Specific Media.
MySpace's longtime rival Facebook now has over 700 million members and value which has been put as high as $100 billion. Comscore listed Facebook as the fourth most-visited site in America in its May analysis of web traffic, with 157 million visitors, the research firm said. That put it only slightly behind Microsoft's (MSFT) sites. Facebook's ad revenue should be $2.2 billion this year, and is believed to be highly profitable.
How could a business started in a Harvard dorm room in 2004 bring down a News Corp. property? Founder Mark Zuckerberg launched the site as a way for college students to share information with friends. By all rights, given its head start and corporate backing, it's MySpace that should have the $100 billion valuation.
What happened to allow Facebook to leapfrog MySpace and become the top social network will be debated for years. One theory is that Facebook was more effectively designed to appeal to young Internet users than MySpace was. Young adults and teenagers are more likely to spend a lot of time online, this theory suggests. But that can't be the only explanation, because Facebook is now used by seniors and the middle-aged as well.
Another theory is that News Corp. management didn't understand the Internet well enough to steer MySpace toward regular Internet users, and instead tried to use the social network as an instrument to promote its Fox products. Still another theory is that MySpace added an annoying level of advertising after a deal was inked with Google (GOOG). The deal gave MySpace $900 million but cluttered the site with marketing messages. Or, it may be that people were concerned about their private information being "owned" by a huge media company.
The only thing that analysts can say with near certainty is that MySpace was sold for a fraction of what Murdoch paid for it.