$1 million isn’t the “real” purchase price for the company. Some assets are being left behind, say our sources, including millions of dollars in accounts receivable plus some other cash. All or most of these assets, plus the purchase price, will be used to pay off some of the debt iMeem has accumulated.

About half of iMeem’s 55 employees will now work for MySpace. The rest, we’ve heard, will be looking for a new job.

One question that’s still unanswered – will the iMeem service live on? That’s completely up to the music labels, say our sources. iMeem’s deals with the labels terminate on this acquisition. The service is running at breakeven, we’ve heard, so MySpace may push to keep iMeem alive.

One thing is clear – MySpace is getting the iMeem assets for an absolute steal. I wouldn’t be surprised if other bidders suddenly get interested in iMeem and try to disrupt the deal before it actually closes.

MySpace and iMeem won’t comment on this story.

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The iMeem acquisition isn’t yet finalized, we’ve heard from sources, and awaits approval from various stakeholders.

We don’t know the price of the acquisition, but this isn’t going to be a big win for investors. iMeem has raised at least $25 million (that we’ve been able to track) plus at least another $10 million in debt. But the difficultly in making a free streaming music service work as a business model forced them to make some hard decisions. Earlier this year they renegotiated label contracts and recapitalized the company, bringing in $6 million in fresh capital.

iMeem found a way to survive a few more months. But now they’re under the financial gun again, we’ve heard, and investors aren’t willing to put more capital into the company. But MySpace is stepping in to acquire the company.

What’s in it for MySpace – the acquisition of a seasoned team with lots of experience in music. Plus the iMeem and SNOCAP intellectual property. It’s not clear if the iMeem brand will live on, but iMeem users will certainly be welcome at MySpace, I’m sure.

This is another blow for free streaming music lovers. iMeem and MySpace Music were among the last free streaming services in the U.S. And MySpace Music, we’ve heard, will soon be forced to turn to subscriptions to manage costs.

iMeem was founded six years ago by then 23 year old Dalton Caldwell The first product was social networking via a client application that included file sharing, status messages, etc. It morphed into a music streaming service over time. According to Comscore, iMeem had 16 million unique visitors worldwide in September.

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At the Web 2.0 Summit a few weeks ago, MySpace CEO Owen Van Natta outlined the strategy for the social network to perhaps regain some of its former glory: the “socialization of content.” While MySpace may not be seeing major growth in terms of new users, the social network is gaining major traction on its communities that are based on niche verticals, such as MySpace Music. Van Natta said that he thinks MySpace has a unique position on the web because of its music deals with all the major labels and the independent ones in the music space. Van Natta’s strategy is being applied in other verticals and MySpace Fashion is one niche community that has flown under the radar but features compelling content.

MySpace Fashion, which had a significant UI overhaul last week, aggregates news and provides original content about all things fashion and style, including established and unknown designers, clothing, accessories, trends and celebrities. The site and all of its features, which like all for MySpace’s niche platforms, can be fully accessed by non-MySpace members, making it a web destination as opposed to an enclosed community. The MySpace fashion community currently has includes over 500,000 MySpace members but site is also being accessed by non-MySpace members who simply want to visit the sites to checkout the latest trends and news about fashion.

The site, which originally launched in 2007, includes several interactive features. The Fit is a weekly video video cast that follows celebrities and designers into their closets and along on their shopping expeditions. This week’s Fit follows celeb stylist Rachel Zoe and past shows have featured Paris Hilton, Lady Gaga and others. Fresh Face is a way to engage up and coming designers in the fashion world, and wisely engages the designer community. The feature includes photos from lines and a Q&A with the designer.

MySpace’s Behind The Seams is a video program that highlights the “influencers” behind the “seams” of the fashion world from store owners to stylists. The social network even has a give away to entice visitors; each Thursday MySpace gives away a designer item (i.e. handbag) to a user. And interestingly MySpace has two features which integrated content from other fashion news and content sites. Shop the Look, which is powered by ShopStyle, lets users find the same style as celebs but at affordable prices. WhoWhatWear, a celeb style and trend site, showcases a trend of the week.

MySpace Fashion’s editor Annie Meyers-Shyer says that all of the content on the site is targeted towards the 18-26 year-old demographic, and the site’s content and subject matter reflects this, with features on the Jonas Brothers and Taylor Swift. And MySpace is continuing to add new features to its fashion platform. In the next month, the social network will launch a designer directory, which will feature the MySpace pages of all the major brands, magazines, stylists, designers and more, making it easier for users to connect with the designers and brands they admire and love.

While MySpace Fashion isn’t expected be nearly as popular as MySpace Music, the site could be an interesting platform for monetization with brands as well as fashion focused entertainment. For example, I could easily see an opportunity to promote content for the popular reality show Project Runway. MySpace faces competition from several sites, including fashion community StyleCaster and AOL’s own venture into fashion news, Stylist.

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It’s ScamVille, the lawsuit. And we’ve spoken to one other law firm considering a class action claim against these companies.

Will users be vindicated and get their money back? Maybe part of it. A recent class action settlement against WebLoyalty for post transaction marketing scams led to a $10 million settlement, just a tiny fraction of the total revenue pulled in by these offers. The law firms are the ones who get a payday.

Gawker, which broke the story, makes a good point though. That video of Pincus looks bad enough on a blog. Imagine what a jury will think of it. And services like Offerpal have now admitted that what they did was questionable. This will likely settle quickly.

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MySpace seems to be on a bit of a hiring spree. Over the past few months the social network hired Mark Rosenbaum as Chief Financial Officer, Alex Maghen as CTO (he was formerly CTO of MySpace Music), former AOL and Tsavo exec Mike Macadaan as VP Product, and former Facebook Director Katie Geminder as SVP of User Experience and Design. Now MySpace has recruited a product manager from LinkedIn, Christina Wodtke, to be the general manager of social.

Wodtke was previously a Principal Product Manager at LinkedIn and ran the activity stream (which recently got a little Twitter-happy), communication products, and the events application. She also built the search and marketplace design team at Yahoo, and helped to redesign search, shopping and local products. Wodtke will fall under the purview of chief product officer Jason Hirschhorn.

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This tool, developed by Egghead Ventures, with the help of developer Sean Percival, who has been advising MySpace recently, uses MySpace ID to sync any RSS feed with your MySpace status. This is similar to the tool that MySpace’s recently announced that syncs your Twitter with your status. But instead of showing a tweet with a Twitter logo, it shows a blog post title with a link, and a RSS logo. This should make it clear to people looking at your profile that you’re highlighting a post of yours rather than just linking to some piece of content you think is cool. The blog URLs are shortened with MySpace’s lnk.ms shortener.

There are also options for this tool such as setting the time interval that dictates how often it will pull in new content. And you can set an into text to put in such as “New blog post:”

More here on Percival’s blog.

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Schaap stumbled upon the exploit and contacted both Facebook and MySpace. According to his blog MySpace has since fixed the bug, and while his blog indicates that Facebook is still working on it we’ve confirmed that they’ve fixed it as well. So what exactly could the exploit do? From Schaap’s blog:

You don’t need much time to think of all the ways this could be exploited. All what has to happen is a active session, or a “auto login”-cookie and a URL which hosts a exploiting Flash file. For example when accessed, a automatic “post update” could be made, that would lure friends of the user to access the exploit URL, and the exploit would spread virally. An more invasive and hidden exploit could harvest all the users personal photo’s, data and messages to a central server without any trace, and there is no reason why this wouldn’t be happening already with both Facebook and MySpace data.

Schaap’s post is accurate regarding Facebook’s problem, but MySpace says none of their private data was compromised. However, Schaap believes the MySpace is totally wrong. We’re waiting for further clarification on their end. Here’s MySpace’s statement:

“We’re 100% dedicated to the safety and security of our users and immediately after MySpace’s security team identified this spoutbuilder issue we blocked spoutbuilder and then helped them resolve their vulnerability. No private MySpace data was exposed and the vulnerability was never exploited.”

If you’ve ever checked that ‘remember me’ button on Facebook the MySpace login screen and have at any point viewed a Flash app taking advantage of the exploit, it’s possible that all of your data was compromised. You wouldn’t even have to neccesarily open anything — if one of the infected items showed up in your News Feed you could have your data stolen without ever knowing it. Yeah, that’s pretty damn scary. For what it’s worth, Facebook gave us this statement:

The security of our users is a top priority for Facebook and we worked with the researcher who identified the issue to fix it. We have not received any reports that it was ever exploited.

Of course, Schaap pretty clearly writes that there’s no way for a user or even Facebook to tell if their data was harvested, so for all we know it could have been used by multiple developers for months or longer (Facebook is currently investigating how long the bug may have existed). Granted, Schaap could be the first developer to ever stumble across the exploit. But the potential of this bug is so huge — allowing a developer to mine all of the data for any user who accessed their app — that less honest developers may well have used the hack for their own benefit. Facebook has previously said that there are a whopping 300,000 developers building on its platform. And we’ve seen time and time again that some of those developers are not opposed to Black Hat tactics. MySpace has had its own problems.

This is obviously bad news for both social networks, but Facebook in particular has long been heralded as the safer of the two, with its extensive privacy settings and authentic identities. Yet the site has repeatedly seen glitches in its security. I’ve written before about the sorry state of our privacy and the security of our data online, and issues like this underscore that the problem isn’t getting any better. Facebook is no longer just a platform for learning about your college buddies — it’s a serious business, used for photos and messages that can be very sensitive. Hell, I’ve heard of journalists who regularly use Facebook to reach out to potential sources, when secrecy is of the utmost importance. Apparently that’s not a good idea.

The security vulnerability works by taking advantage of an oversight in a crossdomain.xml configuration file, which is used by Flash applets to determine if an application has permission to access data on that domain. The crossdomain.xml files at Facebook and MySpace were allowing any applet from any other domain to access data and the API. Combined with browsers keeping a record of your logged in session if you have checked ‘remember me’, the vulnerability means that an invisible Flash applet on any website you visit would be able to read out all your data and send it away somewhere else. For more on cross-domain requests and security, there is a write up explaining all the details.

If you’re interested in the nature of the exploit itself, head over to Schaap’s blog for a full description of how he stumbled on it.

Image by Lisanne!

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Today MySpace is making a big move itself. They are instituting a “zero tolerance for app scams” policy, says CEO Owen Van Natta, and are amending their apps developer terms of use to further restrict the types of offers than can be presented to users.

The existing terms of use already prohibit many types of scams and require clear and accurate descriptions of offers. But as we’ve shown in previous posts, sometimes a clear and accurate description hidden at the bottom of a page in 8 point type isn’t all that useful.

The addition MySpace is adding a requirement to have users opt in to any specific offer or promotion that includes a renewal or subscription.

Today, we’re adding a fifth principle that clarifies a specific use case that we feel is particularly damaging to the user experience: promotions that include hidden renewals without specific opt-in will not be permitted. Because it’s our belief opt-out offers are misleading and do not have the best interests of the users in mind, we will be updating our Terms of Use this week to better clarify this for users and developers.

Rules are great, but without enforcement the scammy offers never go away (this is the Facebook problem). MySpace says they will enforce these rules and will remove applications that don’t modify practices promptly:

Principles and policies are nothing without action and we will continue to enforce our Terms of Use to put our users first. If we find or are notified of violations of our Terms of Use we will contact the application developer and require that they modify their practices and adhere to our Terms. If we do not receive a prompt and appropriate response we will, as we have in the past, remove the offending application from the MySpace platform.

The proof is in the pudding, of course. But this is yet another big company stepping up to try to put a stop to social gaming application scams. It’s time for Facebook to make their move.

Here’s the full blog post:

MySpace’s Zero Tolerance Policy for App Scams

There has been increased discussion recently about how some application developers on the Web’s major social platforms are misleading consumers with deceptive practices. It’s important that users and developers clearly understand MySpace’s policies and approach to these activities.

The MySpace Apps Terms of Use clearly state that we prohibit any deceptive, misleading, and unfair activity through developer applications on MySpace. The Terms of Use require developers to provide accurate information to users and comply with specific rules around what information is being collected, payment terms, and promotional offers. They also prohibit spam and other malicious use.

Our Terms of Use were drafted with the following four principles in mind:

1. All MySpace users are entitled to a safe, scam-free application experience.

2. All offers to MySpace users must have a clear and accurate description which is not misleading or deceptive to users.

3. All offers to MySpace users must have a clear and conspicuous explanation of cost with no hidden fees.

4. No application is permitted to incentivize a user to provide their personal information in exchange for virtual goods or currency within the application.

Today, we’re adding a fifth principle that clarifies a specific use case that we feel is particularly damaging to the user experience: promotions that include hidden renewals without specific opt-in will not be permitted.

Because it’s our belief opt-out offers are misleading and do not have the best interests of the users in mind, we will be updating our Terms of Use this week to better clarify this for users and developers.

Principles and policies are nothing without action and we will continue to enforce our Terms of Use to put our users first. If we find or are notified of violations of our Terms of Use we will contact the application developer and require that they modify their practices and adhere to our Terms. If we do not receive a prompt and appropriate response we will, as we have in the past, remove the offending application from the MySpace platform.

Developers are our partners and we want to continue our collaborative and meaningful relationship with the development community. Having recently acquired iLike we have access to some of the most successful social application developers with a wealth of knowledge to inform us how we can have a smarter, more thoughtful application strategy.

If you have any questions about these policies or principles please reach out to our Partner Relations team at partnerrelations@myspace-inc.com.

We appreciate all of the feedback we’ve received from our users and developers and look forward to more great things to come for the MySpace Application Platform.

-Owen

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We’ve heard that artists will be offering songs that can only be found through Google search, some of which will be given away for free. Over 20 artists are involved. Beyond that details are still scant, but we hear that the new promotion will start running soon — perhaps later this week.

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Andrew Trader, co-founder of Zynga, said the company makes about a third of its revenue from advertising and another third from virtual goods transactions. The last third comes from companies that provide commercial offers, trading Netflix memberships and marketing surveys for in-game cash.

Zynga revenue guesses range all over the place, but are likely $250 million a year or more. That means $80+ million/year is being brought in from legitimate offers like Netflix subscriptions, as well as the really smelly stuff like recurring mobile phone and learning CD subscriptions that trick users into paying big dollars for little or no return value.

What percentage of offer revenue is scammy? We believe it varies over time, and is heading in the wrong direction. Legitimate advertisers like Netflix and Blockbuster, hit with countless laundered subscriptions from repeat subscripers, are said to be dramatically lowering bounty fees paid on signup. Far less scrupulous advertisers like Video Professor and Tatto take their place.

HotOrNot cofounder James Hong said it best in a comment to our post yesterday outlining the scams: “In a nutshell, the offers that monetize the best are the ones that scam/trick users. Sure we had netflix ads show up, and clearly those do convert to some degree, but i’m pretty sure most of the money ended up getting our users hooked into auto-recurring SMS subscriptions for horoscopes and stuff.”

Offerpal and others, who provide these offers to game developers, try to downplay the percentage of revenue that comes from scams. Clearly they are obfuscating the truth, to put it kindly.

Facebook and MySpace must takes steps to address this.

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Did you know how Mark Zuckerberg supported Facebook in the early days, before he got venture funding? Casino ads. And how about those advertisers who were making over $100,000 a day selling Acai Berry and other weight loss products – they are friends of mine, pioneers of new advertising channels. You see those ads saying “Inbox (5). Nick, someone in San Francisco has a crush on you!” (with your name, profile picture, and city in the ad). I generated millions of dollars from these offers on Facebook – I am not proud of it, but it was very lucrative.

I will walk you through how these online scams work on Facebook and other social networks – the mechanics of how the money is made, some of the people involved, and who is actually clicking on ads. If you’re reading this article, there is a good chance that you are not the type of person actually clicking on these spam ads, but are you curious as to who actually is?

In June 2007, Facebook opened up their application developer platform so that anyone could build games on top of the social network. By having access to user data, game developers could instantly make engaging, viral games. Rate who is hottest among your friends, share quizzes, race cars, grow vegetables, and so forth – all with a click of a button. Users in one click gave the game permission to access their profile data and they didn’t think twice about it.

Facebook hadn’t consider what was possible when the game developer passed on user name, profile picture, and personal details on to an advertiser – and the kind of deceptive ads that were possible.

These ads looked like they were from Facebook- the blue button, white background, same font. And, of course, they had your profile picture, your name – plus that of your friends, in the ad. If you’re a 15 year old girl, would you know what’s being served by Facebook, the game developer, or the ad network? These same offers have been running for years on MySpace, using tactics such as fake Windows system messages and pop-ups.

But the perfect storm being able to dynamically insert user data into an ad, disguising the ad to seem like part of the application, lack of enforcement by the social networks, and billing the parents’ cell phone – well, it’s no secret what happens next.

By early 2008, the platform was generating 400 million impressions a day, as people poked, bit, slapped, kissed, and drop-kicked each other to the glee of a college-age crowd of game developers. These developers weren’t professional corporations – they are college kids who build a game for fun over the weekend and now discovered they could make over $10,000 a day in ad revenue. Yes, we wrote some big checks. The numbers today are much higher. Given the choice of making money versus being ethical, these kids chose money in nearly every instance.

When the Facebook platform first launched, developers used Google AdSense, which was paying 10-15 cent eCPMs, meaning that developers were earning 10 to 15 cents for every 1,000 ads they shown. But soon, ad networks, such as the one I operated, stepped in to show that by using social data and some clever ad copy, we could raise this to well over $6—that’s 60 times better than AdSense. AdSense was getting a 0.1% CTR and earning 15 cents a click. Our ads were getting up to a 4% CTR and also earning 15 cents a click. You do the math.

Believe me, I tried to do honest optimization—running legitimate flower ads on Valentines Day, Walmart ads on Cyber Monday, auto insurance offers on car racing games, and so forth. For months, I went through over 150 offers across a dozen networks, systematically testing offers, ad copy, targeting, creative templates, and so forth. I couldn’t get a single one to work. And in a previous life I worked on Yahoo!’s internal analytics team—our job was to optimize traffic.

I finally came to this realization: People on Facebook won’t pay for anything. They don’t have credit cards, they don’t want credit cards, and they are not interested in shopping. But you can trick them into doing one of three things:

• Download a toolbar: It could be spyware (such as Zango) or something more legitimate, such as Webfetti or Zwinkys.
• Give up their email address: You’ve won a “free” camera or perhaps you’ve been selected as a tester for a new Macbook Pro (which you get to keep at the end of the test). Just tell us where you want us to ship it.
• Give up their phone number: You took the IQ Quiz, so give us your phone number and we’ll tell you your score. Never mind that you’ll get billed $20 a month or perhaps be tricked into inviting 10 other friends to beat your score.

Method #3, getting their phone number, has been the most lucrative thing on Facebook, even more than the fake weight loss offers, for the last 2 years. As an ad network, we were at the mercy of what the game developers want—more money. Here’s what ad networks struggle with—to either run what ads make the most money or else be forced out by other ad networks willing to be shadier than them.

Publishers (game developers) chose whoever makes them the most money.

And that led to things like:

Showing personal data on landing pages: This got a couple ad networks banned—they took the user name and images and put them on landing pages, which increased conversion. This is the equivalent of steroids in Major League Baseball.

Cloaking: This is when you show a different page based on IP address. We and most other ad networks would geo-block northern California—showing different ads to Facebook employees than to other users around the world. One of the largest Facebook advertisers (I’m not going to out you, but you know who you are) employs this technique to this day, using a white-listed account. Our supposition is that it makes too much money for Facebook to stop him. Believe me, we have brought this to Facebook’s attention on several occasions. Here’s what this fellow does—he submits tame ads for approval, and once approved, redirects the url to the spammy page. To be fair, players like Google AdWords have had years more experience in this game to close such loopholes.

Sharks who smelled blood: I was contacted by every major ad network to either run their offer and/or help them optimize their ad platform. One CEO (not saying his name, but they’re on Comscore’s list of the top 25 ad networks) threatened physical violence if we didn’t cooperate with him. I got wined and dined like you wouldn’t believe. That’s how much money was at stake—whether on the game inventory or the self-serve ad platform.

Weak enforcement: Paul Jeffries, who enforced (or didn’t enforce, depending on your view) the platform rules, wanted to allow a laissez-faire economy, stepping in only when the violations were so egregious that his call center was getting flooded with complaints. He called me into a meeting and told me that my ads were costing him more in customer service than any revenue I was possibly generating. That pre-supposed that he knew what we were generating – in the high 5 figures a day. And most of that was profit, since we paid out only a fraction of what we earned. Remember that we had to beat only what Google AdSense generated.

There was no way that Facebook—and definitely not the Federal Trade Commission—could keep up with the “innovation” happening. Witness the virtual currency scam, where users complete the offers mentioned above to earn points in a game. It doesn’t take a genius to know that the quality of such leads is garbage—these users are filling out forms just to get the points.

They sign up for Netflix, a platinum credit card, get an auto insurance quote, whatever. The industry term for this type of traffic is called “incentivized”. The underlying advertiser is paying for these leads much like they would if they were coming from paid search. They may be told they’re getting incent traffic—or maybe not. Or maybe the ad network, the middleman between the advertiser (company paying for traffic) and publisher (source of traffic) is mixing PPC, email, and incent (also called social) traffic to hit certain quality thresholds.

Either way, the advertiser is usually blind—they can’t see the referral data (which is understandably masked) and they probably can’t figure out what’s going on anyway.

The three major ad networks that deal in incentivized (or virtual currency) are OfferPal, SuperRewards, and Q Interactive.

OfferPal is run by Anu Shukla—she and I have sat down before, where she flatly claimed that most of her offer inventory was unique (it was actually brokered from MemoLink, a company down the street from us in Denver). Ms. Shukla also touted her optimization technology, but couldn’t discuss it because of the proprietary nature—I’m sure you understand. You can watch her video with Arrington to judge for yourself.

SuperRewards is run by Jason Bailey (aka ChickenHole), who was able to quickly morph himself from Millnic Media to this new company. This fellow would call me up and yell at the top of his lungs, as I wouldn’t refund his money for setting up multiple accounts to game our network. I did refund his money, only once he agreed to a ban on our network.

Q Interactive is the quietest, but largest player of the group. Formerly coolsavings.com, it’s run by Matt Wise, and is, in my opinion, the most reputable of the bunch. They have Fortune 500 clients and a more massive bankroll and sophisticated technology platform. You won’t find information on their virtual currency platform, as they work with large publishers only.

The offers across all of these networks are similar. There is a lot of money to be made if you’re a game developer on the MySpace or Facebook platforms, so choose your ad networks wisely. Ad Networks are not going away soon, as the big brands aren’t there yet and someone must fill that vacuum.

In case I have thoroughly disillusioned you of all social advertising, let me prognosticate about a slightly brighter future:

When any new platform opens up, the spammers are there first: Traffic is cheap and their untargeted offers are profitable. But as legitimate advertisers come on, they bid the price of traffic up and squeeze out the spammers. The most powerful bit of social advertising, unlike traditional PPC, is the ability to target by interest and by location. And local represents 74% of Facebook’s ad revenues in 2009. That’s a deceptive stat, as it likely includes dating, which is technically “local” – but the point still stands.

Facebook will either clean things up or become a MySpace: Users loved the “trust” and “clean look” of Facebook. I believe Facebook will put controls in place on their fledgling platform, as told to me by the executive in charge of their online marketing. I honestly believe from my meetings at Facebook, that they’ve all drunk the Zucker-koolaid and are putting the user experience ahead of earnings. That’s why, if you’re a UK resident, you’re not seeing those sexy Russian dating ads from a couple months ago—but man, were those profitable. But you may continue to see these girls:

Deceptive ads will be gradually replaced by trusted ads: The underlying premise of all the advertising techniques we’ve discussed so far is that trickery is profitable. Fool them into thinking the new friend request is from Facebook, lie to them that the miracle skin crème is actually free, tell them they’ll earn points if they just click this button – which then puts their email address on a list that’s resold to the top spammers in the world. Incidentally, if you hate someone, sign them up for one of those free offers – it will burn their email to a crisp. Just kidding – don’t do that.

The local and big brand advertisers are slow to react, but will eventually shift their ad dollars to Facebook, as they figure out how to advertise effectively. Facebook is the “other Internet” and represents 25% of all pageviews in the US. What’s possible right now:

Imagine getting an ad on your birthday, saying “Happy Birthday, Nick! Mention FBCAKE and get a free slice of cake today at Jim’s Coffee Shop” (yes, you can target people on their birthdays).

What if you’re a B2B company and want to hit small businesses? You can target by job title and company. That’s not possible in traditional PPC, where a search for “massage” can be a consumer with stiff muscles, a student looking for a massage school, or a practitioner looking to buy massage supplies.

What if you’re Maggianos and want to target folks who like Olive Garden? You can hit precisely those fans—and even narrow down to where they live, how old they are, and if they are married. Then send them to the nearest location to book their wedding anniversary party.
 Are you a Denver liposuction doctor and want to target middle-aged females in upperclass neighborhoods who watch “Desperate Housewives” and like to eat chocolate?

What if Farmville could be sponsored by Albertsons and offer real fruits and vegetables on sale? Wouldn’t that be more powerful than clipping coupons from the daily newspaper?

It’s going to take a few years, but these legitimate advertisers will push out the scammers and Facebook will put more rules in place. Enforcement will tighten, but spammers are clever with shifting their entities, enough to make us all “dizzy”. We said that when these platforms first launched, earnings were in the 10 to 15 cent range. Then spammers raised the bar and could afford to pay $6 per thousand impressions (or about 20 cents a click) for the same inventory. But when the legitimate guys come with the hyper-targeted local ads, they can afford to pay $10 or even $50 per thousand impressions for that inventory. The spammers will be forced out of this particular game and onto whatever is next.

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In short, these games try to get people to pay cash for in game currency so they can level up faster and have a better overall experience. Which is fine. But for users who won’t pay cash, a wide variety of “offers” are available where they can get in-game currency in exchange for lead gen-type offers. Most of these offers are bad for consumers because it confusingly gets them to pay far more for in-game currency than if they just paid cash (there are notable exceptions, but the scammy stuff tends to crowd out the legitimate offers). And it’s also bad for legitimate advertisers.

The reason why I call this an ecosystem is that it’s a self-reinforcing downward cycle. Users are tricked into these lead gen scams. The games get paid, and they plow that money back into Facebook and MySpace in advertising, getting more users. Who are then monetized via lead gen scams. That money is then plowed back into Facebook and MySpace in advertising to get more users…

Here’s the really insidious part: game developers who monetize the best (and that’s Zynga) make the most money and can spend the most on advertising. Those that won’t touch this stuff (Slide and others) fall further and further behind. Other game developers have to either get in on the monetization or fall behind as well. Companies like Playdom and Playfish seem to be struggling with their conscience and are constantly shifting their policies on lead gen.

The games that scam the most, win.

And some users aren’t dumb, either. For every user who gets tricked into some fake mobile subscription, there’s another who can beat the system. That’s where the legitimate advertisers, like Netflix and Blockbuster, get hit. Users sign up for a free trial with a credit card, get their game currency, then cancel the membership and start over. Netflix has a policy of only paying for a user once. But game developers use a complex set of partner chains to launder these leads and try to get them through for payment. Netflix sees an overall lowering of quality and pays less for leads. Game developers, desperate to monetize, then search for ever more questionable offers to make up the difference. In the end, the decent advertisers are out, and only the worst of the worst remain.

Left alone, the system really will slide into a full blown disaster. The platforms (Facebook and MySpace) are in a position to regulate this, and even have rules prohibiting some scams. But those rules are routinely ignored by developers, and are rarely enforced by Facebook and MySpace.

There can be only one reason Facebook and MySpace turn a blind eye to user protection – they’re getting such a huge cut of revenue back from these developers in advertising. If they turn off the spigot, they hurt themselves.

Zynga may be spending $50 million a year on Facebook advertising alone, fueled partially by lead gen scams. Wonder how Facebook got to profitability way ahead of schedule? It was a surge in this kind of advertising. The money looks clean – it’s from Zynga, Playfish, Playdom and others. But a large portion of it is coming from users who’ve been tricked into one scam or another.

And recent moves by Facebook to shut down application spam only make the problem worse in some way – game developers have to spend more money on advertisers to get users now that the viral channels are shut down. That means the games have to monetize even better. Which means more scams.

It’s time for this to stop. Facebook and MySpace need to create and enforce rules against it so that game developers aren’t tempted to get a competitive edge by scamming users. And if Facebook/MySpace won’t protect users, then the government will have to step in.

There’s an easy way to determine if something is a scam or not. For any particular offer, ask yourself if anyone would buy the product or service if the terms were clearly spelled out for them, and they weren’t being bribed with in-game currency. The answer for many of these is a resounding “no.” A few examples are below.

Examples Of Scams:

A typical scam: users are offered in game currency in exchange for filling out an IQ survey. Four simple questions are asked. The answers are irrelevant. When the user gets to the last question they are told their results will be text messaged to them. They are asked to enter in their mobile phone number, and are texted a pin code to enter on the quiz. Once they’ve done that, they’ve just subscribed to a $9.99/month subscription. Tatto Media is the company at the very end of the line on most mobile scams, and they flow it up through Offerpal, SuperRewards and others to the game developers.

As you can see in the image below, nothing in the offer says that the user will be billed $10/month forever for a useless service.

Another scam: Video Professor. Users are offered in game currency if they sign up to receive a free learning CD from Video Professor. The user is told they pay nothing except a $10 shipping charge. But the fine print, on a different page from checkout, tells them they are really getting a whole set of CDs and will be billed $189.95 unless they return them. Most users never return them because they don’t know about the extra charge. Woot. Again, sites like Offerpal and SuperRewards flow these offers through to game developers. See here for more on the Video Professor scam.

Of course, there’s no mention of any of these payments in the offer itself:

An Industry In Denial

Yesterday I attended the Virtual Goods Summit in San Francisco. In the Q&A session of one panel I asked Offerpal CEO Anu Shukla to explain the ethics of her business, and outlined my ecosystem of hell argument above. Shukla went on a tirade, calling my points “shit, doubleshit, and bullshit” (yes, really), but never really addressed the points. A video of the exchange is below, care of Alexa Lee.

Offerpal now has a blog post up on the exchange, but they still don’t address the issues. They offer misdirection, denials and a shield of rules that are never actually enforced.

Sadly, most of the audience of game developers was on Offerpal’s side. Many of these developers see quick dollars with lead gen scams and they don’t really care about how users are affected.

In one session earlier in the day, IGG Cofounder Kevin Xu recommended that game developers “get users in the door to play free, then monetize the hell out of them once they’re hooked.” Sadly, it’s simply human nature to push the rules until they break. It’s time for Facebook and MySpace to protect their users from this stuff and make sure it stops.

p.s. – An interesting development. Offerpal defended their mobile survey scams on stage and in the blog post referenced above, saying there was no scam involved. But today those offers have quietly been pulled down from all the games I’ve checked. If there’s no scam, why remove them? At least some good is coming from my ongoing rants.

Update: Two Companies That Said No To Social Media Scams

Update 2: How To Spam Facebook Like A Pro: An Insider’s Confession

Update 3: Scamville: Zynga Says 1/3 Of Revenue Comes From Lead Gen And Other Offers

Update 4: Zynga Takes Steps To Remove Scams From Games

Update 5: RockYou Joins The No Scams Parade. But What’s Facebook Up To?

Update 6: MySpace Says Zero Tolerance For App Scams, Changes Terms Of Use

Update 7: Tragedy Of The Social Gaming Commons: A Blueprint For Change

Update 8: Offerpal Tries Out A New CEO. Shukla, Queen Of Scams, Is Out.

Update 9: Facebook To Increase Enforcement Of Anti-Scam Rule

Update 10: ScamVille: New Offerpal CEO Admits Mistakes, Makes Bold Promises

Update 11: Zynga CEO Mark Pincus: “I Did Every Horrible Thing In The Book Just To Get Revenues”
Pincus’ response: to zwink or not?

Update 12: Time Magazine: Are You Getting Scammed by Facebook Games?

Update 13: Is Facebook a Paradise for Scammers?

Update 14: “Horrible Things” Slink Back Into Zynga

Update 15: Zynga’s FishVille Sleeps With The Fishes For Ad Violations

Update 16: Zynga To Remove All In Game Offers

Update 17: Zynga’s FishVille Gets Out Of The Penalty Box At Midnight

Update 18: The ScamVille Lawsuit: Facebook, MySpace, Zynga And More Face Possible Class Action Suit

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MySpace is the big lottery winner here. They bought iLike for $20 million in August. What they got: a talented (literally) team that is starting to fill the executive ranks at MySpace, the biggest music application on Facebook, and, it turns out, a deal with Google that is now sending massive traffic flow directly to MySpace Music.

Our understanding from sources is that MySpace made an offer to iLike without knowing about the Google deal. Supposedly, since iLike was under NDA, all they knew was that iLike had a big partnership opportunity with some big company, nothing more. In hindsight the iLike deal looks smart even without Google. Add that in and it looks absolutely brilliant. I’m no fan of MySpace CEO Owen Van Natta, but I’ll give the man credit here.

Giving Facebook The Benefit Of The Doubt

Facebook decided not to aggresively pursue iLike. They seem to have firmly moved away from any desire to deal with content directly, so this looks less like a mistake and more like a strategic decision.

But one thing is clear. Facebook utterly failed to execute on their music strategy from last year, even while trying to work via a partner application to avoid direct contact with content. Meanwhile, Google stepped in and quickly brought streaming music directly to users, without paying anything at all for it.

iLike CEO and now MySpace exec Ali Partovi, speaking at the launch event last night, didn’t hold any punches against Facebook. He gave huge credit to Google for pulling off a win-win-win-win (labels, google, users, MySpace/LaLa) in the difficult online music space. And he noted that “others have tried or are still trying and have failed miserably.” He was quite clearly referring to Facebook.

The truth is that we don’t know if Facebook flailed on a huge opportunity to get into the Google search stream, or if they just decided they don’t want the hassle of dealing with music directly. We’ll give them the benefit of the doubt. And they certainly had no idea of the Google deal back when they were trying to buy iLike anyway.

Ticketmaster Flubs It

None of Facebook’s excuses (didn’t know about the Google deal, strategically not what they want, etc.) apply to Ticketmaster. The company was a big shareholder in iLike, had a board seat, and certainly new every detail of the Google deal. They could easily have acquired iLike, probably for not much more cash than the $13.3 million they already had invested. But instead they let the company go to MySpace, knowing full well that they were enabling a huge potential competitor.

If Ticketmaster had acquired iLike all that Google music search traffic would be under their control. Click throughs to the iLike site could be monetized through event ticket sales. It would probably be a matter of months, not years, before they got their investment back in additional ticket sales.

And what’s worse is that MySpace now controls all that traffic. MySpace actually has a much more complete worldwide database of concert events than even Ticketmaster has, and they already flow through a lot of traffic to ticket sales at Ticketmaster and competitors. Now that database is combined with iLike’s impressive concert discovery and alert product. When you plug Google search traffic into all of that, its got to be scary for Ticketmaster:

“MySpace has the world’s largest database of live events, and iLike has already built some of the world’s best concert-discovery features available online,” Courtney Holt, president of MySpace Music, wrote in a blog post. “We’re delighted to have implemented the first structured integration of concert data into Google search, and this is only the beginning of our efforts to innovate in the live event space.”

We frankly can’t see any reason at all for Ticketmaster to let iLike go to a potential competitor, particularly with this Google deal locked up. Ticketmaster CEO Irving Azoff certainly knew what was happening. So why did he make such a huge misstep? Possibly because he’s in the middle of a divestiture of topline assets as part of a merger with Live Nation. Azoff is rumored to be looking for a huge personal payout as part of that deal, and may even be spinning himself off along with assets.

In other words, maybe Azoff couldn’t care less about the future of Ticketmaster.

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Key takeaways – Google will integrate new partners as it makes sense. And while MySpace knew about the negotiations between iLike and Google prior to announcing their acquisition of iLike in August, the deal was far from certain. More on that in a subsequent post.

All are below:

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Here’s how the new feature will work: Onebox will let users stream songs directly from Google’s search result page, and will also include additional content like tour information and music videos (the actual content shown will vary depending on the partner — more on that later). Enter a query for “Use Somebody”, and you’re going to see a small ‘play’ button in your search result that lets you stream the Kings of Leon song in its entirety, or buy the song. Clicking on the play button will bring up a small browser window that will immediately start streaming your song. If you enter the name of an artist rather than a song title as your search query, Google will present a handful of popular songs by that artist with multiple ‘play’ buttons.

Here’s what the results page looks like, when multiple songs are being presented:

The new feature is being powered by two entirely different services: Lala, the innovative music site that lets people buy ‘web songs’ for ten cents, and iLike, the popular streaming music and artist hub that was recently acquired by MySpace. In an interesting twist, iLike’s appearance in OneBox will be short-lived — MySpace branded widgets will soon be taking their place. This is an important step in MySpace’s transition to being seen as a media/content hub rather than a pure social network. MySpace is also leveraging some of the new features it has recently rolled out since the iLike acquisition, including its artist dashboard and extensive library of music videos — you’ll be able to jump to a music video for a song directly from MySpace’s Onebox results (this is impressive given that the site only launched those services a week ago).

Likewise, this is also a massive win for Lala. We’ve been big fans of Lala since the site relaunched back in October 2008 with a unique business model that lets users build their music libraries in the cloud for cheap — you can purchase an entire streaming version of an album for around 80 cents, or 10 cents per song. The service’s only problem has been establishing traction, and this will certainly help with that. Expect the service’s userbase to see a big jump as millions of people on Google are exposed to Lala for the first time.

The joint partnership comes with a few quirks. Google will basically be doing a coin toss with each eligible query to determine which service will be serving up the widget. That will help the service distribute load and perhaps leaves the door open for Google to include multiple other music services, but I’m not sure it will provide the best user experience — some users may get confused when a feature in one widget isn’t available in the other.

Google VP of Search Products and User Experience kicked off the event,talking about how Google has expanded its search offerings over time, with Images (2201), Book (2003) and Maps (2007). “Music” is one of Google’s top ten searches of all time, as is “lyrics”. But it hasn’t always been easy to actually find music, which is why Google is looking to offer full song streaming directly from Google.

Google has also partnered with Gracenote to provide full lyric search — if you type in the lyrics from a portion of a song, they’ll identify the song. Song purchasing partners include imeem, Rhapsody, and Pandora, who will help with music discovery.

Google passed the baton off to MySpace, with MySpace Music President Courtney Holt outlining how much growth MySpace Music has seen and how happy the site is to be working with Google. Ali Partovi, iLike’s former CEO (and MySpace’s current SVP Business Development) took the stage, first taking the time to congratulate MySpace on acquiring iLike. He was joking, but what he says has some truth to it: MySpace made an offer on iLike before iLike could talk about the Google partnership, which iLike had been working on for a long time. In other words, MySpace lucked out with the deal.

Lala’s Bill Nguyen next to the stage, saying that Lala has always been about finding music, and then discovering more that you might like. He says that for the last ten years, music has been about business models, not discovery. Once you wind up on Lala, you can follow other users and see what they’re listening to.

The new feature will be gradually rolling out to users, with a small percentage (1-5%) having access today and rolling out gradually over the next couple days to everyone in the US.

Here’s the Lala player:

Here’s MySpace’s widget (you’ll be seeing an iLike widget temporarily, but eventually they’ll shift over to look like this):

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It’s a very interesting idea, to say the least, and obviously you’re interested in it, as about 200 of you commented on it yesterday. So we’ve obtained Parker’s full slide deck from his presentation. Find the full presentation embedded below, definitely worth the read.

SP_Web2.0_FINAL_AsGiven

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Miller reiterated some of what MySpace CEO Owen Van Natta said yesterday at the conference. They have a plan to move forward focusing on what they believe they’re good at, socializing content, which will be music-heavy thanks to their deals with the music labels.

In the audience question part at the end, TechCrunch editor Michael Arrington got up to ask Miller specifically about the sale of Photobucket, which we first reported on, but News Corp. has yet to confirm. Miller laughed, but said “No, I can’t make that announcement here.” That of course implies that they will make the announcement at some point.

Miller acknowledged that Photobucket is right in the middle of an important business decision for News Corp.: Are some of their assets stand-alone products, or part of the bigger picture? “It will be resolved shortly, but not today,” Miller said.

From what we’ve heard, MySpace is going to sell Photobucket to Ontela for a deal valued at $60 million, which is a huge markdown from the $250 million (plus a $50 million earn-out) that MySpace paid for the company in 2007.

Below find my live notes from the Q&A (paraphrased):

JB: What do you make of this whole rodeo around Twitter?

JM: I think it’s great. Search had been out of the socialization of the web thing, now it’s in it. It’s also clear that we have a lot of competition. It’s great. It’s not a one-horse race. Microsoft is hanging in there (in search).

JB: What’s it like to work with Rupert Murdoch?

JM: It’s fascinating. He’s so curious. He wants to know everything about everything. No matter what it is. He retains his ambition. He’s as ambitious as anyone I’ve ever met.

JB: What’s your job? What does it involve?

JM: I’m Chairman and CEO of the Digital Media group. I do two things really: One, I’m the executive in charge of a lot of businesses like MySpace. The other role is to provide strategy and guidance for the entire corporation.

JB: How do you split your time between those two? Thoughts on all this media stuff?

JM: Rupert feels there needs to be a paid content model – that doesn’t mean there won’t be free as well, but that’s our stance. There will be free and paid, but there will be paid. I spend half my time in that world trying to figure it out.

JB: It is just a pay wall?

JM: That’s a hard way to do it. You have to offer value to the users. It has to be different from the free area. It’s not just throwing a pay wall. Wall Street Journal is working with that model. You can walk and chew gum at the same time.

JB: So that works for the WSJ, but they have a fat wallet audience.

JM: Well I think they offer value.

JB: Why leave what you were doing?

JM: I was having a good time and we were investing in a few key areas. One big one was online video. That was fun and focused. But I was given the opportunity to work on a larger scale with more difficulty. I’m a glutten for punishment.

JB: The idea was that you were going to have to “fix MySpace,” right? Owen was here yesterday laying out the plan. How is it going? How do you know it’s working?

JM: Fix isn’t the right word. Nothing was broken that we’re putting it back. You have to think ahead. I don’t want to be in the catch up game. We need to get the essence of what MySpace is. It’s about making contacts, we’re getting back to that. The social part. Look at the big picture, then focus it down. Music announcements are core.

There was some stuff that needed to be fixed. You need to stablize loss of traffic. It’s been a combination of organic loss of traffic and cleaning up the service. We’re stablizing it, but it’s not the fix game. We need to do new and different.

JB: Rupert got a lot of credit for making that investment at the time. Is he upset for how it has gone?

JM: You know you have to keep moving forward. But MySpace didn’t keep going. There have been competitiors in the general space, Facebook and Twitter that came along. We’re upset that we didn’t keep going. It’s hard to regain momentum.

JB: Is Twitter overhyped?

JM: It’s fascinating. I didn’t think it would have been what it is now. But the question is: Where does it go? They’re smart to be an open platform. The money question is easier, I think. Their new deals are interesting, but it doesn’t take you to a billion valuation. Are you your own thing or are you a sub-category of what Facebook is doing? That’s the question.

JB: Is News Corp. a buyer in this space right now?

JM: We did just buy iLike. It’s strategic. We’re not just trying to go after cool businesses, it has to be about our strategy. That’s a music focus with iLike. We’re not just investing.

JB: What are the key strategies?

JM: Generally I’m obsessed with realtime. I have been for a long time, even when I was with AOL. I didn’t know it back then, but now you can really see it. Twitter is one level, but it’s beyond that.

Another interest is global. I just returned from Asia – it was really eye-opening. As we heard from Mary Meeker, the mobile world over there is amazing. They have things over there that compete with the iPhone. The mobile Internet is huge over there. We’re actually behind over here. It’s a huge transformation.

For MySpace music and games. It needs to start with an “M” a “G” or an “E”. We need to open our platform more with MySpace, like Twitter is doing.

JB: Talk about FAN (Fox Audience Network).

JM: Most people in the audience would know the biggest ad networks, but not the #5 one, which is us. We’re moving up. We want to be #4. A deal with Omnicom helps us big time. It’s a real-time bidding network, advertisers can buy directly in to this huge network. They can buy a huge audience. It’s giving that power over to the buy side. It’s the beginning of a coming out part for FAN. Display advertising is coming.

JB: In display publishers feel threatened right? You can reach through the brand and grab an audience. Is that a problem?

JM: Yep. I think it’s a real change. There will be a premium world that will command high CPMs. Hulu can do that. It’s a true premium buy and a great expereience. Then there is the cheap inventory that can go to a broad audience. I think FAN can help with that. But the middle will get squeezed. You have to be premium or bulk. It’s hard in the middle.

JB: FAN is an exchange network right?

JM: Yeah directionally exchange.

JB: How’s it different from what’s out there.

JM: Along with a move to display, it’s a move to exchange. FAN uses the social networking environment. People tell you stuff freely through these networks. We’re not doing profiles, but it’s audience, to be clear.

JB: So if I declare what I’m interested in on MySpace, but then I go to another FAN network, and I see an ad for what I’m interested in.

JM: You can spread that across the web.

JB: Let’s go back in time a bit. As the former CEO of AOL, the new CEO TIm Armstrong – what should I ask him?

JM: That’s a good one. I’m thrilled he’s there. They need to get their freedom. I know they’re on track, but are they really. The freedom from Time Warner. That’s #1. It’s mutually felt, both want it. Is it on track.

Number two is how does the new content focus scale? Can you make enough of it in the model they have. The portal-based model.

The third, what’s happening in ad sales? Revenue is kind of important and AOL has a declining revenue and subscription base. So you need accelerating ads. It’s so key to that company.

Audience Q&A

Q: Is there a big opportunity for brands to do new things with all these social networking communities and sites?

JM: Absolutely. That’s what AOL has been doing with TMZ, leveraging the AOL platform. We need to start new brands, not just extend networks.

Q: Is authentication big?

JM: Yes, it’s a big thing.

Q: (From Mike) Did you sell Photobucket?

JM: (Laughs). I’m confident that is Mike Arrington. No I can’t make that announcement here. But look, we’re going over all our assets, is it a stand-alone or does it fit? Photobucket is right in the middle of that. It will be resolved shortly, but not today.

Q: Talk about MySpace versus Facebook and Twitter.

JM: Twitter is about the assymettic relationship. Facebook is symmetric. MySpace is in between. We’ve had both in our history. We need to declare a major. Facebook is trying to be everything it seems. We’re more about interests of our users going forward, more than just the friend thing. I think we’re closer to Twitter. But we can be richer, I think. I don’t know if Twitter with change, but that’s how it is today.

Q: Talk about copyrights.

JM: We need to have copyrights that are expected. Even in China they realize that. They have a budding content industry too. They’re very interested in copyright and piracy. I think we’ll have an Internet that respects copyright.

That’s a wrap.

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Van Natta clearly had a strategy for this Q&A: To say “the socialization of content” as much as possible. That’s the direction he wants to lead the social network in as it attempts to prove it can exist in a world where Facebook has passed it as the dominant social network.

So what does the catchphrase mean? Van Natta thinks MySpace has a unique position on the web because of its music deals with all the major labels and the independent ones. And because it’s a much more open network than Facebook, he believes this will work to MySpace’s advantage in helping people find content.

And that’s why Van Natta had not one, but two announcements today surrounding MySpace Music. The first is a dashboard that artists can use to see analytics about who is visiting their page and listening to their music on the network. The second is a single hub for all music video content. (We covered both more in-depth here) Again, this is possible because of MySpace’s unique music deals with the labels, Van Natta stressed.

Van Natta wouldn’t comment on the talk that Google is unhappy with the major ad deal the signed in 2006 and is set to expire next year. He did say that MySpace has always been great at monetizing its site and losing any one deal would not be a major blow.

Earlier today, Facebook COO Sheryl Sandberg’s keyword was “sharing.” That’s essentially what Van Natta is saying too, but he’s betting that his more open network and strong media ties will differentiate it.

Find the full Q&A below (paraphrased):

JB: So, did you do a deal with Twitter (laughs)? What are you doing with MySpace?

OV: What we’re doing with MySpace is what me and Rupert first talked about it. We think it can be the next generation of digital distribution of content on the web. It’s happening through people and not through portals. It’s the “socialization of content.”

JB: To the crowd: How many people have a MySpace page (maybe 20%), how many have a Facebook Page? (everyone). So how is MySpace different, why use it?

OV: We think we’re different from Facebook because you don’t have to have a real connection to use it. Maybe you use it to discover music. Music tastes get influenced by your friends. Also movies. These are touchstones in relationships. You shouldn’t have to know them in the socialization of content.

JB: MySpace Music is a very big deal. How is music playing into this strategy? Does that box competition out?

OV: Music is a great example of our socialization of content. Everyone loves music across all demographics. Our music label relationships are unique and that gives us content that other networks don’t have. MySpace is the only place you can go today to stream all the music you want. And every band out there today has a presence on MySpace.

And today we’re launching an Artist Dashboard (more on that here). This is our first example of our integration with iLike, the deal we recently closed. You can see all kinds of data. Geographic breakdowns, etc. There was a huge demand for things like this from artists. And they can use this data beyond the web – like when they think about tour dates. This will be available to all artists.

And we can extend this across other entertainment models.

JB: Will you charge for it?

OV: I think we’ll find other ways to monetize. One more product announcement is that we’re launching the full catalog of music videos from all the labels (big and independant) in one place for the first time. This is a byproduct of our relatioships with the labels.

We know that we can make the site a lot easier to use, and we’re working on that. This is one thing. This is a cleaner design than a lot of areas of the site. This will launch as I step off the stage. This will surface videos in a social way.

JB: Didn’t Google just announce that?

OV: But ours is pretty. (laughs)

JB: But seriously what do you have to say about what Google just announced?

OV: No deal news, but we have a lot of cool partner announcements. Google has been a great partner for a long time. Stay tuned.

JB: Let’s talk about Google more. They have a huge deal with MySpace, that expires next year. It’s big to have that money, but it may not have worked out that well for Google. Does your business hurt if that goes away?

OV: We’re really pleased with where are business is and where it’s going. We’ve always been good at monetizing our business. This is integrated marketing that no one else on the web does. And we’ve just scratched the surface. A key going forward is how you measure success. Our business doesn’t hinge on any one deal. News Corp believes that too.

JB: Jon Miller is your boss, and they’re building a business of their own: FIM, and MySpace is a part of it.

OV: Jon will talk more about it, but FIM is a big part of our monetization today.

JB: If Google goes away can that replace it?

OV: Again, we’re really good at monetization. There’s a lot of opportunity.

JB: Owen was an early member of Facebook. What does success eventually look like for MySpace now?

OV: We think we have all the building blocks, we just need to execute. If we do that we will realize the vision of content being socialized.

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Matt Ghering, a product marketing manager at Google, has been one of the people talking to the big four music labels about the new service, we’ve heard from one of our sources. And he has supposedly sent these screenshots of the look and feel of Google Music search to various rights holders and potential partners.

The first screenshot shows how a search result might look on Google for a search for “U2.” A picture of the band is to the left of four streaming options for various songs, and the user has the option of listening via either iLike or LaLa. Click on one of the results, and a player pops up from the services that streams the song, along with an option to purchase the song for download.

We don’t know if this is the final look of the service, but it’s definitely something Google has been sending to people to show them what it might look like.

More thoughts on this later as we digest all the information coming in. But one thing is clear – this is a huge win for LaLa and iLike. Both will get massive flow from this deal. And as much as we criticize MySpace, their acquisition of iLike is starting to look sort of brilliant.

Search Results:

iLike Player:

LaLa Player:

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Photobucket has grown steadily since the acquisition, and currently brings in 54 million worldwide users each month (Comscore). But MySpace never integrated with Photobucket, keeping their own separate photo and video platforms.

It’s been little more than a side show ever since the acquisition, and the founders have left to do other projects. With News Corp. scrambling to fix up its digital division, it’s no wonder Photobucket has been on the chopping block.

Best of all, the deal will bring in new cash to News Corp.

It’s not clear that the final terms have been worked out. But our source tells us that News Corp. will sell a majority stake in Photobucket, retaining some equity. If Ontela is the buyer, the merged company will take a new round of financing, with most of the cash going to News Corp., and part of it going into the new company.

Presumably this deal won’t look much different from eBay’s spinoff of StumbleUpon earlier this year, except on a larger scale. News Corp. gets a cash injection and retains a portion of Photobucket. And the service, combined with Ontela or another buyer, gets a new start.

Ontela didn’t return a request for comment. MySpace isn’t answering their phones or email. Everyone is being very quiet about the deal in general, in fact. We’ll update as we learn more.

Update: more details here.

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CEO Owen Van Natta is making his first public interview next week at the Web 2.0 Summit. The Wall Street Journal, which is owned by the same parent company as MySpace (News Corp.) wrote a glowing if somewhat vague turnaround story on MySpace today titled “MySpace Tries to Recover Its Cool.” And, of course, MySpace is throwing a party. Van Natta sent an email to Silicon Valley tech and entertainment press inviting them to a “secret show” concert next week right after he’s interviewed, with the exact venue and band to be announced the day before.

Parties to cover bad (or vague) news aren’t a new thing for MySpace – they threw one earlier this year in Europe right as European operations were being decimated.

The odd WSJ article, which disclosed the sister-company conflict of interest nine paragraphs into the article, seems to be saying that MySpace will focus on social networking around content as a way to win. In a sentence that appears to be directly from a press release, the article says: “In a strategy shift, MySpace is striving to become an online hangout for people to connect with friends over entertainment content, whether it’s the new Pearl Jam album, blogs from celebrities like British pop singer Lily Allen or a karaoke contest for the Fox musical comedy “Glee.”" The article also quotes Chief Product Officer Jason Hirschhorn: “This is not an all-things-for-everybody portal…This is a social entertainment experience.”

And those page view declines? The WSJ article notes that U.S. unique visitors are down 15% year over year. But the article doesn’t note the much more serious decline in page views. U.S. page views were nearly cut in half, from 40 billion to 22 billion per month from September 2008 to September 2009 (Comscore). Worldwide, page views dropped from 44 billion to 27 billion per month during that same period, a 39% drop. MySpace has lost 13 million unique monthly visitors since April alone, when Van Natta began his tenure.

And while the article says MySpace revenue will likely fall this year, they don’t mention the revenue cliff the company faces next June, when $300 million/year in Google welfare money dries up. At that point, there’s no way MySpace will continue to be profitable unless even more serious layoffs are made. I wonder if Van Natta will talk about that on stage next week. I’m guessing not.

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Or so we thought…

A new group of execs were brought in today. And among them are the cofounders of music startup iLike, Ali Partovi and Hadi Partovi. As usual, we peruse the MySpace profiles of new execs because every once in a while we find a new exec hire that hasn’t actually ever used the service.

All the new execs appear to have MySpace profiles. But just before I signed out of the last one i checked, Ali Partovi, a video he uploaded caught my eye. He says “Here’s a little video I just made for the MySpace sales conference next week (Oct 13-15). They told everybody, “make a video showing how MySpace is YOUR space”…..”

Anyway, meet your new SVP Business Development at MySpace, who is most definitely not buttoned up and boring. We’ve also added this video to his Crunchbase profile. Because we can never, ever let him live this down:

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MySpace acquired streaming music service iLike in August for $20 million.

Other recent MySpace hires include Mark Rosenbaum as CFO and Alex Maghen as CTO (he was formerly CTO of MySpace Music, now he heads technology at MySpace proper as well).

Below is MySpace’s bio about Stirratt, who served as EVP of Digital Advertising at MTV before joining MySpace:

Prior to MySpace, Stirratt served as Executive Vice President of Digital Advertising at MTV Networks where she oversaw advertising sales and strategy, ad operations, Digital Fusion-integrated marketing, and Tribes, the company’s third-party vertical affiliate network. Before MTV, Nada served as Senior Vice President and General Manager of advertising sales at Advertising.com. Earlier in her career, Stirratt worked in ad sales and business development for such entertainment brands as AOL-Time Warner, Moviefone, Allure and Cosmopolitan.

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Here’s the bio MySpace is sending out about Rosenbaum:

Prior to joining MySpace, Rosenbaum served as a consultant to MGM, advising on business intelligence and financial management system implementation. Prior to MGM, Rosenbaum held the Senior Vice President, Corporate Finance position at Gemstar-TV Guide (formerly a News Corporation Company), and served as CFO of the tvguide.com and TV Guide Mobile units. Previously, Rosenbaum had served as Chief Executive Officer at SmartJog S.A., a VC-backed French startup specializing in worldwide digital asset delivery. Prior to that, Rosenbaum served as Senior Vice President of International Free/Basic TV Distribution and U.S. Networks for Twentieth Century Fox, and has also held senior management and finance positions at the Walt Disney Company.

Other recent MySpace hires include Alex Maghen as CTO (he was formerly CTO of MySpace Music), former AOL and Tsavo exec Mike Macadaan as VP Product, and former Facebook Director Katie Geminder as SVP of User Experience and Design.

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AU/NZ users will have access to the same features as the US site, including shareable playlists, artist activity feeds, and other social functionality. But there is at least one notable difference: while MySpace Music launched in the United States with Amazon as its partner for purchasing digital downloads, the AU/NZ version has teamed with Apple’s iTunes. MySpace wouldn’t comment on whether this is foreshadowing a larger partnership, but we may well see the Apple deal extend stateside. MySpace likely had an exclusive partnership with Amazon for the US launch, but it’s been a year (which may well have been the length of the deal), so it may soon be free to explore other options.

Since launching last fall, MySpace Music has been something of a bright spot for the otherwise faltering social network. The site has seen a tenfold growth in traffic since launching, with the US portal drawing 18.95 million users (it’s also the #1 site in time spent for the all important 18-34 demographic, though some of this can be attributed to the fact that users can leave it playing in the background). MySpace Music also recently rolled out a much improved homepage and has seen a number of exclusive releases.

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