Social Networking Site Gets Some Unwelcome Signs

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What comes next for aging social networking site MySpace now that it has cut its work force by one-third?

The Beverly Hills-based company, which is owned by News Corp., still has strengths it can draw on as it tries to reclaim its title as the top social networking site in the United States. Its MySpace Music service remains one of the most popular destinations on the Web for bands and music lovers. And the company has a strong user base in Latin American countries and among Latinos in the United States.

But MySpace will also have to contend with the factors that have slowed its growth. When News Corp. bought MySpace in 2005 for $580 million, the larger corporation imposed its bureaucracy on MySpace’s once nimble startup culture. MySpace has since ceded ground to rivals such as San Francisco-based Twitter.com and Palo Alto-based Facebook Inc.

MySpace Chief Executive Owen Van Natta said Tuesday that the company decided to cut about 400 of its workers to return “to an environment of innovation.”

The announcement did not specify which divisions were impacted by the layoffs. So it’s unclear if the company was cutting critical operations that would be important to an attempted resurgence. A MySpace spokeswoman said the job cuts were made “across all divisions of the company.”

A source with knowledge of MySpace told the Business Journal that the development division, which creates new products for the site, was impacted by the layoffs. That could hamper the company in the future, one expert said.

“That’s cutting bone,” said Ray Valdes, a Silicon Valley-based vice president of Web services at research firm Gartner Inc.

Valdes expressed skepticism that the staff reductions will help make MySpace more innovative by reducing bloat. If anything, they may reflect increased corporate control of the Web company.

Industry watchers said that Jonathan Miller, chief executive of News Corp.’s digital media group, took a more direct hand in MySpace’s operations shortly after he was hired in early April. Miller brought in Van Natta after Chris DeWolfe, MySpace’s former chief executive and one of the company’s original founders, announced he would step down.


Bad news

The announcement of the layoffs capped a week of bad news for MySpace. First, research firm Comscore Inc. announced Facebook passed MySpace as the No. 1 social networking site in the United States for the first time last month. Facebook had 70.28 million users in May compared with 70.26 million for MySpace.

Then, Internet blogs began publishing rumors that Google Inc. would not renew an advertising partnership it had struck with MySpace three years ago. That deal was reportedly worth $900 million over three years. Google is expected to renew the deal, but give less money to MySpace.

MySpace will likely now focus on improving its appeal to certain audience segments.

MySpace Music, for instance, draws in people who want to stream free tunes online or discover new artists. It contains music from more than 5 million artists and bands, and competitors such as Facebook don’t offer a similar feature. Presumably, MySpace would build new applications for its music audience and otherwise try to expand its reach.

The company will also likely put some work into MySpace Local, which lets users write reviews of local bars, restaurants and clubs. That’s another area Facebook hasn’t developed.

Valdes said MySpace could encourage independent developers to build Web applications for the site. For instance, MySpace could hold a contest offering cash prizes to the developers who create the most innovative or useful applications for a MySpace service.

“They need to dangle a carrot,” he said. “When Google tried to get developers to build applications, they had a software developer contest with a $10 million prize. That got people’s attention.”

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