My Insider Perspective from the Outside

When Michael asked me to guest write this post, I hesitated because MySpace’s new management team is extremely capable and will determine their own path to restore the company to its glory days. But after fielding dozens of calls and hearing erroneous comments being attributed to me, I decided to weigh in with the hope of providing some general thoughts for the team to consider as they embark on their journey. I’ve never been a fan of armchair generals so I’ll refrain from giving specific operational advice – I am not in the trenches and haven’t been involved in the day-to-day operations for several years. We had our share of challenges, but in the end we prevailed, and I wish the same success for the new MySpace team – as well as all entrepreneurs entering the social media space.

Keeping past experiences in mind, here are some general thoughts on where MySpace can push forward:

Own the spaces that only MySpace can

MySpace is forever linked with the birth and meteoric growth of social networking – so the media, industry pundits and social media aficionados will always measure you against whatever the latest social networking companies are doing. Ignore the peanut gallery. Define yourself and your markets according to whom you truly are and where you can be successful; do not let them define you. MySpace is bigger than social networking.

The MySpace brand is global and occupies a powerful position in the mind of hundreds of millions of people. That power can be transported into other business areas – places where Facebook, Twitter or the next generation of players would struggle to take root. Only MySpace has deep ties and an inherent understanding of where entertainment and community intersect. Only MySpace is plugged into Hollywood from top to bottom.

Copycat strategies are rarely rewarded on the web. Witness the billions of dollars invested by industry titans in pursuit of what entrepreneurs built before them. Microsoft Search vs Google Search. Google Video versus YouTube. Yahoo360 versus MySpace. Don’t waste your time trying to “catch up” in areas that you aren’t currently leading. Build your lead in the areas you already dominate and define valuable new offshoots from that elevated market position. And bring back the entrepreneurial spirit that is so often lost in thousand person companies. Keep your corporate friends close, but keep your entrepreneurs even closer as you build a culture of “change” and taking “chances” in the organization and product.

Transform your unique UGC into marketable media

Over the last few years we’ve seen MySpace focus enormous energy on driving revenue through branded advertising in diverse and creative ways. We have also seen the addition of traditional media within the main areas of the Site. These efforts should be appreciated by everyone because prior to selling MySpace to News Corp., the conventional wisdom was that neither advertisers nor professional content providers would support a community made up of user generated content. In my opinion, News Corp. proved that this form of new media was a viable business and from that proof hundreds of social media companies were born. All that said, while these are valuable and important commercial programs, remember that you are serving an audience of millions of users each with their own talents and a predisposition to express themselves online through content creation. Every day, they’re piling into the site, uploading videos, posting photos, sharing original songs and publishing content that is often a great deal more than chatter. Take the same energy that is being put into monetization and reaching “professional” content producers to tap the power of the crowd and build a strategy for empowering your users to fuel a rich and valuable content component for your site. Start by curating the best of the community from the bottom up and make the MySpace experience all the more immersive. Each night the world tunes in to offline, curated social media in the form of American Idol, Britain’s Got Talent, and Project Runway. What brand is better positioned than MySpace to lead entertainment curation online? We have done this through Demand Studios and are profitably sourcing high quality socially published content for our network of properties and commercial partners. MySpace can do it with a focus on entertainment and related content categories.

Listen to the community and let them guide YOU

Now is probably a good time to revisit your community strategy. The hallmark of MySpace’s early success was being the definitive place online to hang out and have fun, allowing you to freely express yourself. The new team will need to recapture that communal energy that fueled MySpace’s once explosive growth. I remember Tom used to read and respond to nearly every single email and then built the user’s “needs and wants” into the product. That was a key learning from MySpace. And, as a result, every product at Demand Media comes from the wisdom and energy of the community, making it feel vibrant and alive. Metrics aside, you can truly “feel” whether a social network is alive or just a collection of people milling around.

Today, MySpace feels more like a loosely woven collection of millions of personal home pages than the vibrant community that we all know is there. More than providing widgets and the ability to “friend” places and things, let your users gather around topics, hobbies and their personal passions. Let them create their own sub-communities within MySpace and set yourself up to entrust an inner league of users to manage and moderate a fun, safe and fulfilling environment – enabling those gathering points to be focal parts of the experience.

In addition to developing the community experience from the bottom-up, it’s equally important to think top-down about its core meaning and purpose. If you do nothing else, define a clear vision for the essence of the MySpace community experience. At Demand Media we call this SOUL, and the continuous, organic growth of our owned and operated network of properties is predicated on it.

Finally – and this is the easiest advice to give but perhaps the hardest to follow – get internally focused. You have a new team at the top and thousands of people below you watching your every move. Who you spend your time with will speak louder than any words you can utter in a conference room or in an email. Are you glued to the users? To the product developers? To the ad sales team? To “the suits?” To the pundits? You have 100 days to set your course. The more time you spend away from “the glass” – the less likely you will be to get it right.

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Which explains why Yahoo has approached Demand Media to acquire them in the last couple of weeks, say multiple sources close to the companies. The rumors started when someone spotted Yahoo’s new Head of U.S. Region Hilary Schneider leaving Demand Media’s offices in Santa Monica a couple of weeks ago. She was there, reportedly, to float the idea of an acquisition by the company, in the $1.5 – $2 billion range, say our sources. Scott Moore, who runs Yahoo’s content sites and is based in Southern California, has also reportedly been present at the meetings.

Demand Media, which refused to comment on this story, owns a large domain registrar called enom, which spins off a lot of parked pages (domains that are owned but do nothing but show advertisements). The ads that are shown on those pages are counted under the umbrella of “search marketing” and tend to generate very high fees. Demand uses both Yahoo and Google, but mostly Yahoo, for ads on those pages under a long term deal. When that deal is up, there’s a very good chance Google will win the business.

Demand also owns a number of large media sites, including ehow, trails and livestrong (along with dozens of others). All of these sites are heavy on content and generate a lot of page views and ad impressions. Demand Media also adds social networking features to those sites. They’ve historically used MySpace code to power the social networks, but have recently started to move over to Pluck’s social network product. Demand bought Pluck for a rumored $75 million earlier this year.

That means Demand nicely fills a number of holes in Yahoo’s current business. They have lots of ad impressions, including search impressions, to help Yahoo gain market share in those areas (and keep it away from Google). The vertical content sites fit into Yahoo’s strategy of owning content when it suits them. And the Pluck distributed social networking product also happens to fit squarely into Yahoo’s plans to build social into all things Yahoo.

The two companies have other connections as well. Goldman Sachs, which is Yahoo’s investment bank and has advised them all year on the Microsoft transaction, has invested $80 million or so in Demand Media (out of a total of $355 million raised). And Gordy Crawford, who owns a big chunk of Yahoo through Capital Research, is also a personal investor in Demand Media.

Our sources are saying Demand Media has rebuffed Yahoo’s advances so far, given the company’s uncertain future. And Rosenblatt reportedly is looking for more like $3 billion for his young but rapidly growing startup.

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This news has been simmering for a while. When Ross Levinsohn (pictured left) resigned as the President of Fox Interactive Media late last year it was rumored that he intended to raise a large fund to acquire Internet startups. He soon partnered with Jonathan Miller, the former Chairman and CEO of America Online and the two have been out raising capital for the last few months. Their new entitiy is called Velocity Investment Group.

They’ve found their partner – $15 billion hedge fund General Atlantic. Details on the amount of capital committed to the new fund are scarce, but General Atlantic issued a press release today announcing that Levinsohn and Miller have become advisors to the fund. The timing is interesting – 5:14 pm EST on the Friday before the long weekend. The press was circling on this story, and the release was obviously made to preempt the news from breaking.

More news should be coming next week as details leak – size of the fund, etc. The new venture will compete with Demand Media and others for acquisitions. Demand Media, which has raised $220 million in capital, was founded by former Intermix Media CEO Richard Rosenblatt. Ironically, Intermix Media, the parent company to MySpace, was acquired by Fox during Levinsohn’s tenure there.

Update: We beat the WSJ by 16 minutes on this one. Their story is here.

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