Fox: $1 billion Search Deal with Google

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1. Shuki Haiminis
   

   August 7th, 2006 at 1:14 pm

   Interesting….I wasn’t sure if they were going to be the ones powering their search. Looks like they locked it down.

2. Tone
   

   August 7th, 2006 at 1:38 pm

   and looks like many of the myspace 3rd party widget providers may see their last days now that google will integrate with toolbar, and watch google widgets to follow to meet that 1 billion figure over 3 yrsl

3. ginchy
   

   August 7th, 2006 at 1:47 pm

   All Google needs to do is figure out how to incorporate a functional “NOT FBI Agent” option into their MySpace searches, and this deal will pay for itself several times over.

4. Drew Olanoff
   

   August 7th, 2006 at 2:41 pm

   Great move on both sides. Makes absolute absolute sense.

5. Dave McClure
   

   August 7th, 2006 at 2:42 pm

   damn, Microsoft must feel like crap right about now… that’s 3 strikes in a row:
   - lost AOL deal to Google
   - Yahoo spurns offers to partner/get acquired (maybe eBay too?); instead eBay-Yahoo does partnership deal together
   - now, they lose MySpace deal to Google

   isn’t it time MS stops screwing around and just buys somebody?

   - Amazon seems like a good deal right about now (for eyeballs & payments)
   - IAC might not be a bad deal just for a good search engine (Ask)
   - even eBay / Yahoo might not be able to resist a hostile takeover, for the right price…

   meanwhile, Google just keeps getting bigger & badder.

   must be time to throw another chair, steve…

6. EP
   

   August 7th, 2006 at 2:51 pm

   I think this is great for myspace, as it allows them another revenue stream. I dont really like it for Google. I think that all this traffic they are buying will just be watered down searches, and will result in lower conversion rates for advertisers.

7. jawandapuck
   

   August 7th, 2006 at 3:11 pm

   Considering Yahoo’s somewhat incumbent position within MySpace, they likely decided to walk away from an unprofitable deal. MySpace claims it will be receiving the majority of the rev share arrangement. Google really had nothing to loose, since they don’t have a competing social network to speak off and Yahoo does. For these reasons, Google is the perfect partner for MySpace. Some of the terms of the agreement that have come out so far seem to suggest this deal could be quite one-sided. It may even be more profitable for MySpace than News Corp developing or acquiring their own search engine (ie, Ask.com or Technorati) — certainly a lot less risky. Google may have been thinking defensive strategy here.

8. Techwarrior
   

   August 7th, 2006 at 3:14 pm

   I like the deal, but wouldn’t it be better for MySpace users if they could pick their own search provider [ What engine they want to use ] as well as ad partners on their page, Adsense, Adbrite, etc.

9. Sara
   

   August 7th, 2006 at 3:34 pm

   As a heavy spender on Google AdWords, I will be excluding the distribution of my ads to MySpace. In my opinion, the MySpace demographic and audience is likely to result in poor conversions for AdWords advertisers that have their ads displayed within the MySpace environment. While I have not advertised on MySpace personally, I do know people who have and they were less than impressed with the results. There’s a good reason why MySpace is basically giving away advertising. In the April 23, 2006, Ross Levinsohn stated that they’re charging “a bit over a dime for 1,000 impressions.” Interestingly the article also states:

   “A sign of that challenge is seen in Mr. Levinsohn’s effort to expand the use of text ads — the rapidly growing format pioneered by search engines. He has been running tests with Yahoo, Google and several smaller ad providers and has sought proposals from them for longer-term deals.”

   “The answer he received was a shock. Not one of them, not even the mighty Google, was sure that it could provide enough advertisements to fill all the pages that MySpace displays each day, Mr. Levinsohn said. The search companies did not want to dilute their networks with so many ads for MySpace users, whom they said were not the best prospects for most marketing because they use MySpace for socializing, not buying.”

   So the question is: what has changed between April and today? They still have the same audience and as an advertiser I don’t see any potential for my AdWords ads displayed on MySpace to match the return I’ve come to expect from advertising directly on Google and its key partners. It looks more like a blackhole for my money.

10. Narendra
    

    August 7th, 2006 at 3:42 pm

    This is most certainly a performance deal and it won’t pan out.

11. Search Engines WEB ♣
    

    August 7th, 2006 at 3:59 pm

    Would be intriguing to find out if Fox considered either:
    CREATING their own Search Engine - OR - Becoming a META Search Engine using GYM?

12. Mike Jones
    

    August 7th, 2006 at 4:40 pm

    The google adwords program continues to be less and less relavent each day. Our $1000/month spending has gone from generating many leads a year ago to hardly enough leads to even pay our $1000 in ads, and we’ll probably cancel our ads alltogether as a result. That’s because of all these B.S. fraudulent clicking everywhere. I just hope they offer a method to exclude myspace as where our ads will appear or it will be a total waste of money.

13. Cody Mays
    

    August 7th, 2006 at 5:16 pm

    I wonder how this will effect the load on the myspace servers, since they are down a lot. Full text searching can be a fairly CPU intensive task.

    Anyone else think they should allow myspace users to put adsense searches on their myspace to generate an income? (not that you can’t now, but as an option in the profile edit area).

14. Dr. Evil
    

    August 7th, 2006 at 5:40 pm

    Agree with Mike Jones. AdWords is already losing its effectiveness for me. The last thing that I need is my ads showing up on MySpace. It’s the nightmare userbase and if Google doesn’t let me exclude MySpace, I’m gone. I think Google made a huge mistake with this deal and Yahoo and Microsoft are playing it smart. Google is so eager to defend their territory that they’re making bad deals like this thinking that it’s a victory for them. But Yahoo and Microsoft are probably just letting them take deals like this because it’s going to reduce the effectiveness of AdWords and could make Yahoo and Microsoft’s offerings more attractive if they are able to execute well in their development. At the end of the day I’ll advertise with the company that can get my ad in front of a quality audience that generates a good ROI. MySpace is NOT that audience.

15. Michael Arrington
    

    August 7th, 2006 at 5:48 pm

    Narendra - you’re right, the guarantee is based on milestones being reached and that’s mentioned in the press release. FIM execs stressed on the call that they full anticipate making the numbers. They’re public, so they’d be careful about making statements like that without support.

16. Milo Riano
    

    August 7th, 2006 at 6:16 pm

    David McClure — I don’t think Microsoft feels crap. Their ego is big enough than that.

    Also, they can throw a lot of money bigger than anyone, which they did not because they are only able to go to certain level which makes sense to them.

    They pretty know that beyond that amount is not worth it anymore for whatever reasons they have.

17. Nobubble
    

    August 7th, 2006 at 7:28 pm

    “Myspace won’t make money!. Dead 2.0. The bubble…..blablabla”. How often did I hear this crap over the last few months. You all got proven wrong. Next will be youtube… cashing in 100 million x $ 0.01 for a 5 sec video spot= $1 Million revenue/day at current status. With the speed of growth Youtube easily could make $500 million/year.

18. Shuki Haiminis
    

    August 7th, 2006 at 8:59 pm

    I would have to agree somewhat with what nobubble is saying. Looks like they made their money back on the myspace purchase in this new deal with google.

    Another thing that most people can’t speculate on is how their own content advertising has helped sell more movie tix etc.

19. Yesbubble
    

    August 7th, 2006 at 9:56 pm

    Nobubble: I think you’re oversimplifying things. Just as in the first bubble, there were companies that made money. MySpace is the largest, most popular social networking site. Nobody claimed they weren’t making money; they already had fairly substantial (8 figure) revenues before News Corp. purchased them. This Google deal might bring them to *profitability* if they hit their numbers. Also recall that MySpace has been around since 2003/2004 before the bandwagon effect kicked in and they’re the least Web 2.0ish company of them all.

    Most people who believe there is a bubble (myself included) are not suggesting that there’s no money to be made and that there aren’t companies that will be successful. What we are suggesting is that, as with any market, there is limited room in the market and you need to have a proper business model. There is no such thing as an eyeball economy. Many new social networking services are being launched and funded. Most do not have much differentiation from each other and many appeal to very limited markets (that is, the features they offer aren’t compelling enough to the mass market to get people to leave MySpace et. al.). According to the recently released Social Media Deals Report (http://www.paidcontent.org/social-media-deals-report-preview-vc-deals-breakdown-by-sub-sector) in the past year 21 social networking startups have received nearly $100 million in VC funding. I doubt that most of those 21 startups are going to be around in a few years. A lot of the dealmaking going on is a reflection of the fact that many VC firms have so much money in their funds that they have to either invest it or give it back and they are afraid of missing the bandwagon. But the truth is that the train has already left the station. MySpace is the exception - not the rule. There could very well be a few other large acquisitions (Facebook, Bebo), but even there we’ve seen reports that the suitors are not happy with the valuations being asked for. There is not an infinite supply of media company money to buy out every startup with MySpace dreams and the barriers to entry in this market are so small. Startups without a real business model and critical mass are going to be disappointed to learn that Rupert Murdoch isn’t going to come along and make them rich.

    :et’s talk about YouTube. YouTube is clearly the leader in video and you could very well be right that they will be bought out for a large sum of money. Again, they are the exception - not the rule. Business 2.0 counts 173 video startups (http://money.cnn.com/2006/06/20/magazines/business2/videoshakeout.biz2/index.htm). Perhaps 10 of them will survive long term if they’re lucky. YouTube faces some unique challenges. One, much of their content is copyrighted and we’re already seeing developments on the legal front. Their business becomes much less appealing if they have to actively police their service. If they start showing ads, plaintiffs will have slam-dunk cases for contributory copyright infringement because YouTube will clearly be profiting from the infringment. Two, much of their content is questionable. The media companies are eager to get involved with these popular services but there have been numerous articles about how they are still trying to figure out how they can do it. They are not comfortable having no control over the content their brands are associated with. Coca-Cola doesn’t want its ad displayed on a video showing a college student getting drunk and throwing up all over the dorm. Toyota doesn’t want its ad displayed on a video where a 13 year-old girl in a skimpy outfit is dancing seductively to a rap song with dirty lyrics. So again, you’re vasty oversimplifying the market. It’s not as easy as just charging a penny an ad and making $1 million/day. If YouTube could “easily” make $500 million/year why aren’t they doing it? By all reports they are burning through money.

    It’s also important to take the entire online advertising market into context. There is a FINITE supply of advertsing dollars out there. Online advertising is very popular and many major companies are focusing a lot of attention on it, but at the end of the day online advertising is just a part of an overall media mix. As Sara pointed out, the NYTimes reported that it was difficult for MySpace to find a search partner because for a while none of them had enough inventory to serve to MySpace.

    I don’t think there’s any doubt we’re in a bubble. The BusinessWeek article about Digg is a perfect example. A company barely breaking even on $3 million in revenues, no matter how popular, is not worth $200 million to anybody in a sane market. Talk of those types of valuations proves that there is a bubble. But just because there is a bubble does not mean that there won’t be people who make lots of money. It just means that the majority of people will lose money, and lots of it.

20. Richard Dean
    

    August 7th, 2006 at 10:06 pm

    nobubble . . I agree with your attitude, but you are still way too early . . let’s actually wait and see who gets what money before declaring winners and losers . . . it’s not real money until the check clears. I personally think if anyone can figure out how to make money out of this it’s google, plus who knows what kinds of things they can learn about myspace users to try and sell them google products better . . . this is definitely a bigger picture kind of deal, but lest I get carried away, we’ll see how truely successful it is in the 10Ks.

21. bala
    

    August 8th, 2006 at 12:33 am

    This deal seems like locking Fox into google world through AdWords revenue promise and pushing google prodcuts into Fox world. As it is revenue share deal, the real people paying for this deal are AdWords advertisers who have no idea where their ads are being displayed and clicked!!!

22. Chris Lake
    

    August 8th, 2006 at 5:02 am

    Yesbubble, with respect, it ain’t a bubble.

    Bubbles are driven by idiot financiers who don’t know what they’re doing, only that a market is going up fast. It doesn’t matter what that market is, dotcom, biopharma, mining, whatever, they just want a piece of it, and they contribute to the bubble mentality as a result. What we’re seeing today is a million miles away from the stupidity of VC and investment bank activity (and some illegal activity at that, eg Blodget & co) of 1998-2000.

    The fact is the dotcom crash happened because of all the silly valuations, not because the internet wasn’t a plausible business opportunity, or that it would be used by ever greater numbers of people, with ever greater frequency. Those silly valuations couldn’t be supported in the short term, and panic set in. It is also worth mentioning that banks can make money on a falling stock by shorting, and they can actually create a situation where a stock falls (eg Redstone Telecom in the UK in 2000 had a £50m overdraft facility pulled overnight, crippling its financial situation; the stock bombed).

    The valuations of ‘dotcom 1.0′ (apologies for the lame phrase) were not merited by a) the usage habits of consumers, eg trust, shopping, b) broadband penetration, or lack of, c) business models, or lack of, d) online advertising revenues… etc etc. All of these things are now in place, to some degree or other, and they will continue to improve going forward.

    But in the medium term, 5 years after it all bottomed out, consumers have caught up and have no problem whipping out their credit cards to buy products, making online retail a reality. They are using the internet way more than they’re reading newspapers, yet the newspaper ad industry remains many times larger than online. Who needs to catch up? Consumers using the internet?

    No, advertisers need to catch up, and by all accounts, they will. Online ads need to be accountable to the nth degree - there is massive hypocrisy among media buyers who think nothing of spending way more ad budget on print / TV ads, which cannot be tracked with anything like the same accuracy. And they are largely brand ads, while the internet is still perceived as a direct response medium. Why the difference?

    So where are we at? You say 21 social networking sites attracted $100m in funding. I say MySpace sold for $580m and just pulled in a $900m deal. That’s proof of value, for Murdoch / Levinsohn et al. That’s ROI for them. And proof that social networking business models can work.

    Bebo attracted $15m of funding from Benchmark, and that it has a very good chance of making serious ROI on that investment. It is a numbers game with VCs, is it not? The one in ten rule. So if nine startups fail, but one (Bebo) comes good, then overall there is value in teh market for investors. The skill of course is determining which companies to invest in. If you spread the risk across a number of startups rather than throwing all the eggs into one social networking basket then it looks as if you’ll do well. A social networking startup bond, if there was one, would be doing just fine, IMO.

    Also, the BW / Digg thing is a bit of a nonsense. Kevin hasn’t sold it for $60m or for $200m and it is still early days for Digg. It could go either way for Digg, but until the deal is done valuations don’t count for much.

    I agree with you on a few points - you do need a business model, despite what Paul Graham thinks, and there is no eyeball economy (although it could be argued that there is an eyeball economy with reagrds to TV and newspaper ads).

    At any rate, it ain’t a bubble…

23. Alex Leonard
    

    August 8th, 2006 at 5:37 am

    I would usually have considered Fox to be somewhat evil.. does this not counter Google’s mantra “Do not be evil”?

24. Nobubble
    

    August 8th, 2006 at 6:07 am

    Yesbubble…
    Sorry but you don’t get it right.

    There is a huge amount of advertising $ out there and Fortune 500 companies start shifting entire campaigns from TV to the online market. We are far from being at the end. Just see the “Youtube” reaction of TW, Viacom and all the other Media giants. They are scared!
    As Chris Lake statet above, the dot com crash had different reasons.

    Social networks are a thread to Dating websites (a few billion $ market), classified sites, TV channels, Radio stations, Newspapers………and they will make their money! There are hundreds of ways to monetize these sites and of course one day they will merge or die. That’s how most industries function, but why call that bubble?

    Regarding Youtube your Coke example is funny but wrong. Coke released that they will work with MTV UK on a social network. Can you see what I mean?
    With the tagging technology Youtube will be able to sort out videos where people puke. They also can hire a few customer support people who take care of that. That won’t be an issue at all.

    Regarding Digg all you should know that according to Comscore 54% of the internet users read news. There is a market, but I think you are right when you say that this company is not worth $200 million.

    I tottally agree with you when you write that some Web 2.0 companies that are totally based on bogus. If I crawl thru the Techcrunch database I have my doubts that these sites will be around. But talking about a bubble is going way to far.

25. FoF
    

    August 8th, 2006 at 7:01 am

    If I remember correctly, MySpace did not adopt Google AdWords since the offering was not adapted to its site. This is therefore a surprising move from Fox…

26. Narendra
    

    August 8th, 2006 at 7:29 am

    Mike,

    The NYTimes leads with “Google Deal Will Give News Corp. Huge Payoff” today and doesn’t even mention the performance piece!

27. Otis Gospodnetic
    

    August 8th, 2006 at 9:39 am

    All this money talk…who cares…but how about those toolbars? How many can one have in a single browser? That’s great news for monitor manufacturers!

28. Wil Schroter
    

    August 8th, 2006 at 11:36 am

    Am I the only person that misses the bubble?

    Everyone making a ton of money, enjoying life, building fun companies. Yeah, let’s definitely avoid THAT again!

    I lived through the bubble and through the bust, and I’d take that ride again in a heartbeat. Anything beats the 5 year hangover afterward.

    We could use some silly optimism for a change.

29. Greg H.
    

    August 8th, 2006 at 4:36 pm

    Will: I guess it depends on your perspective. It’s great fun when you’re playing with other people’s money and you don’t have any guilt over how it’s used. Part of the problem was that companies were run by ethically-challenged people who took advantage of the situation and abused the trust and fiduciary responsibilities that were given to them. If you study the rise of American capitalism and look at the titans of commerce (guys like Walton, Rockefeller, Ford, etc.), most were extremely frugal and managed every cent as if it was their last. They were not perfect men to be certain, but they built lasting empires and treated shareholder dollars with respect. Fast forward to today where feelings like yours are prevalent. “It’s not my money so who cares?”

    Granted, a lot of investors were and are extremely stupid and in a sense deserved to lose their shirts, but Bubble 1.0 showed just how morally bankrupt we are as a business culture.

    A lot of people did make money, but most people made paper fortunes and never cashed out. Even more lost substantial amounts of money and the entire economy was thrown into recession.

    I for one wish we would go back to the times when businesses were built with sweat and blood and not an overabundance of cheap capital made available by our inflated money supply.

30. BillyWarhol
    

    August 9th, 2006 at 8:38 am

    i Cringe every time i see the words $Billion Dollars + Google + Myspace*

    if only i had of been able to get my Google Adwidget to market i could o been the First Web2.0 $Billionaire!!!

    ;))

    i gotta come up with somethin to Keep the Dream Alive!!

    Insert shameless Plug fer http://www.BillionDollarBaloney.com here!!

31. BillyWarhol
    

    August 9th, 2006 at 8:40 am

    OOPS!!

    http://www.BillionDollarBaloney.blogspot.com

    that might Help!!

    ;))

32. PreZ
    

    August 13th, 2006 at 2:46 pm

    Amazing deal and finally a way to make myspace worth the money paid for it.

33. Zenrob
    

    August 29th, 2006 at 12:56 pm

    I thought your readers might be intersted in seeing some further analysis of this deal at:

    http://zenrob.typepad.com/zenr.....0_mil.html

34. abdul rehman kaja
    

    February 9th, 2007 at 6:57 pm

    get money