Sunday, May 14, 2006

MySpace Oh Oh

Doesn't take a rocket scientist to understand the implications of the chart below from Hitwise.

Apparently 8% of upstream traffic to Google is being driven by MySpace. Holy. Now given Myspace has a search box powered by Yahoo! and MySpace users are still going to Google to conduct search, there's still some work to do. But imagine if MySpace actually built a rich search experience for users (or integrated search into some value add on MySpace), the social networking site would hold significant influence over their users' web search. 8% is no joke to Google or to any search provider.

All this speaks to the power of being the central hub for Internet usage. Much like the browser was in the late 90's, AOL and MyYahoo at the start of the millenium and the search engine homepage since then, users gravitate to a central launching point for the use of the Internet. Where the browsers and Yahoo went wrong was users will take the path of least resistance (like that crazy electron from high school physics) to get to where they want to go. Google offered greater relevancy and users voted with their feet. What MySpace brings is another take on what's revelant to the user (especially the 18-26 age group). Your personal page, your personal network, and path for increasing your network apparently is driving more appeal than mere search results (given the comparable growth between MySpace and Google).

Being the central launching point for Internet usage brings massive leverage. Just ask anyone who signed deals with AOL in 1999 (heck AOL still commands some of that power given the Google deal). MySpace and other social networking sites have some work to do to get there. My best guess is they should pursue the personal web initiatives I've referred to in the past. But if they get there, watch out below...


Anonymous Mike said...

Ro, your last two posts (MySpace Uh Oh and the YouTube/Photobucket) point out the risk in the business model of the latter two companies. If there is incremental profitable revenue available for video and image hosting on MySpace (probably the largest source of customer acquisition), why will this revenue be shared long into the future with third party image and video hosting companies? The technology there isn't that complicated, particularly with Flash 8 for video. It's only a matter of time...otherwise IPIX would still be worth something. Alternately, they would have been worth buying instead of eBay building image hosting from scratch several years ago, right?

5:27 PM  
Blogger Ro said...

What makes them powerful is their ability to cross platforms. Not sure MySpace would want to host content for MySpace competitors. Photobucket and Youtube are largely free and have driven what rents they get to a fairly nominal amount. In order for Google, eBay, MySpace or any other public company to accept that model, they would need to 1) go cross platform (which you know isn't easy to do on behalf of a competitor) and 2) impact margins (given these companies are currently not looking to make rich margins)

10:48 PM  
Anonymous Mike said...

I'd bet MySpace will allow external usage given the competitive dynamics and need to do so to compete (and drive traffic back to MySpace through the external links (and associated higher Page Rank)).

Then again, how about AOL doing it instead;)?

eBay and its recent acquisitions are companies not only with strong externalities, but additional entry hurdles that raise the bar for competitors--eBay and feedback/trust and safety; PayPal and fraud control; Skype and technical relationships with Intel and others (plus detailed knowledge of penetrating firewalls, etc.). Most of these newer endeavors don't exhibit the same characteristics. Hosting images for free?--that's so AuctionWatch 1999:).

If the margins are shrinking, why take a VC investment to raise your liq preferences? I get the Series A small company flip, but VC investments for products or features don't make a ton of sense to me....

1:46 PM  
Blogger Ro said...

Ah there is where you're wrong Mike. A lot of these features are essentially generating strong user communities in and of themselves. A lot of folks would claim that Skype is just a commodity VOIP product. They don't realize its the community of users that ultimately is the barrier of entry vs the technology alone.

2:34 PM  

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