The Rise and Fall of MySpace: The collapse of a $12B giant

In 2006, MySpace passed Google to be the most visited website in the United States, and it was valued at over $12 billion. 6 years later, it was a total failure and sold for just $35 million. And today, well, it's basically an inside joke for people of a certain age. This video is the rise and fall of MySpace.

Oh, and by the way, thanks to Relay for sponsoring this video. More on them later.

The story starts back in 2003 at a company you've never heard of called eUniverse. It would later be called Intermix Media. Reality was this place was kind of a shady digital company. They did all the kind of stuff that, well, it's kind of yucky in the world of the internet. Spyware, installing ads on people's computers, just doing kind of yucky stuff.

But two guys were working there, Chris DeWolfe and Tom Anderson, who kind of wanted to do something a little less shady and a little bigger than what they were working on.

DeWolfe was a business guy. He'd graduated from USC, had an MBA. He kind of lived the straight and narrow. Anderson, on the other hand, had had more of a wild ride. He was the lead singer for a punk rock band, and in high school he was a computer hacker. He'd actually had his house raided by the FBI. Together they had started an email marketing company back in 2001, and the eUniverse guys, our sketchy company, well, it had acquired their business. And so they were working there. In 2003, one of the very first social media sites, a site called Friendster, had come online and it was exploding in popularity. People were hungry for social media, except the Friendster site sucked. It would take 20 to 30 seconds just for a page to load. So Tom and Chris convinced their boss, a guy named Chris Greenspan of eUniverse, to let them build a competitor to Friendster. In just 10 days, they launched their very first version of MySpace. How did they end up with the name MySpace? Well, it was kind of an accident. Tom DeWolfe had originally bought the domain back in 2001 for $5,000, thinking he'd use it for a personal storage service. But instead, well, it would be named the very most popular social media site of the time. And as is common with hit products, it turned out MySpace was just a, basically a copy of Friendster with a couple slight differences that made it all work better. Friendster at the time required everybody to have an invitation to join the site, so there's friction there. MySpace, well, if you had an email address, they were letting you in. And the second thing was, while Friendster was kind of a fixed type thing, MySpace came in and let users customize their entire space. You could put animated GIFs, different colors, even edit the HTML of the thing. It was ugly as hell, but people loved it. eUniverse at the time had an email address list of over 20 million subscribers. That helped kickstart the growth, but eventually the product would go viral. And remember Tom Anderson?

Well, he became everybody's first friend when they joined MySpace. And how Tom had been somebody who was the head of a punk rock band back in the day? Well, he was really tight with LA's music scene, which to some extent is the world capital of music.

And because he had a history in music, he wanted to help his friends share their music online. And so they built MySpace in a way that made it really easy for bands to reach their audience. Whereas before you had to know HTML and spend a bunch of money with a web design firm to get a website, now you could just do it without any kind of training at all on MySpace. Suddenly any garage band could have a presence alongside the big highly produced issues that were coming out of the major labels. You may have heard of a band called the Arctic Monkeys. They've gotten pretty popular and big over the years since then, but the way they actually got their start of publicity was because some fans put together a MySpace page for them. And they got so big via MySpace that in 2005, Domino Records signed them to their label, and that caused their debut record to go so popular that it still holds the record for the most sales in the first week. Folks like Lily Allen and even Adele got spotted through MySpace connections. It was just a place where they could reach their fans directly. Calvin Harris was another one. He got signed after sharing recordings from his bedroom in Scotland. By 2005, this niche that they had gone after, the music industry, It had exploded on MySpace. They had over 1 million bands on the platform, and it was basically the place to go to find and share music. At this time, people were still really trying to figure out what the internet was going to be. Was it a publishing platform? Was it a communication platform? Or was it something entirely new? And old-school kind of enterprises, like at this time Fox News owner, uh, the News Corporation run by Rupert Murdoch, well, the growth of MySpace caught their attention. And this company had grown up in the era of newspapers, and they own the Wall Street Journal, Fox News, I said before, Fox Broadcasting. Like, that was the way they came after the internet and the way they thought about it. So in July 2005, News Corporation spent over $500 million to buy Intermix Media, and that was the owner of MySpace, to build that in the portfolio. And it made sense, right? If they were going to get big in newspapers and they had transitioned that to get big in TV, well This is how they were going to be big in the internet. And it had actually been a bidding war, uh, at the time. Viacom, who was another media conglomerate from the old school, uh, had been part of the bidding war.

And the chairman of that, a guy named Sumner Redstone, was so mad at losing the deal to News Corp that he fired the CEO over it. And smartly, News Corp set it up so DeWolfe and Anderson, they were kept in leadership positions, and they got big bonuses and incentive plans to stick around and keep growing the show.

And it's commonly thought that the mistake that killed everything at this point was what happened next, which was DeWolfe had a meeting with a young guy named Mark Zuckerberg. And in February 2005, Zuckerberg was just a 20-year-old Harvard dropout, and he had started a site called Facebook. And well, he was willing to sell it for the right price. Zuckerberg wanted $75 million for Facebook, and DeWolfe and the team, well, they passed on it. Why would you spend that much money for what at the time was just a college networking site? You used to basically look for pretty girls and get some dates. That's what a lot of people were doing on Facebook at the time. Facebook kept growing like a rocket ship. And in 2005, they actually met again after News Corp bought MySpace. This time Zuckerberg wanted $750 million for Facebook. And again, DeWolfe and News Corp, they passed. If you're alive today, you know that Facebook is worth a hell of a lot more than that now. $14 or $1.4 trillion, which that's what was that, $1,400 billion? Yeah. Would have been a bargain if they'd have bought in at that time. But at the time, it didn't seem like that much of a mistake because over the coming years, post the News Corp acquisition, MySpace, well, it would continue to explode in terms of users. In January 2006, MySpace was adding 200,000 new users per month. The growth kept accelerating. The next year, they were growing 320,000 users per month. They weren't just signing up. These users were sticking around and using the site like crazy.

They were addicted.

The average user was viewing 666 pages per month. By July 2006, MySpace had achieved the unthinkable. They surpassed both Google and Yahoo to be the most viewed sites in the United States. By 2007, the growth was infectious and the site was valued at $12 billion. News Corp, well, they were in talks to merge the whole thing with Yahoo. Barbara Walters named DeWolfe, who by this point had become a friend via MySpace of virtually everybody in the world. Remember, he was everybody's first friend on the site. Barbara Walters named him him one of the world's most fascinating people. The 100 millionth MySpace account was created August 2006. At its peak in April 2008, MySpace had 115 million monthly visitors and $800 million in monthly revenue. But beneath all this success, well, the seeds of its demise had already been planted.

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Thanks to them for sponsoring today's video. You see, back in August 2006, MySpace had signed what looked like a brilliant deal with Google. Back then, it signed up promising to send them $900 million a year in revenue. The idea was that Google would provide exclusive search and advertising for MySpace over that period of time. This single deal by itself, which wouldn't be their only source of revenue, was enough money on its own to pay back by 2 times the entire initial investment by News Corp. But the deal came with strings.

In order to hit those revenue targets, they would have to go on MySpace and basically plaster ads everywhere on every corner of everything. 'Cause you see, back then it was all about display ads and well, MySpace had real estate and they had to use all of it just to make sure Google got paid. Before the Google deal, they had had a certain amount of advertising and DeWolfe later admitted that the Google deal basically had them double the amount of real estate spent on ads. You can imagine what happened. It killed the user experience. The site became cluttered, tough to use, It's tough to tell what was an ad and what was content you wanted to see.

Worse, while folks like Facebook could keep experimenting, make their product better, and continue growing faster and think long term, MySpace was suddenly locked in. They couldn't experiment because every single decision had to make sure that Google was gonna get paid. Zuckerberg at this time famously told his staff to move fast and break things. They were innovating at a pace that suddenly MySpace couldn't keep up with. At MySpace, if something was gonna reduce page views, they couldn't do it. News Corp had come into this whole thing thinking that MySpace was the next iteration of the newspaper. Well, newspapers, you can sell as many ads as you can fit in the print, you know. But in this case, well, that view of the world had set up a situation where MySpace was getting killed. While Facebook and Mark Zuckerberg were thinking in decades, the team at MySpace had been thinking in how do we bring in revenue this particular quarter. Remember how the old MySpace site had been built in just 10 days to get it out really quickly as a test? Well, they were still living under that rapid thing that they had gotten out. The site was held together with basically bubble gum and duct tape. Developers who were working there would describe the code base as Frankenstein's monster and spaghetti code. It was just a mess. Meanwhile, they were doing all kinds of stuff that you just don't do in software development. At that scale, like you stage code, you run tests. Meanwhile, the staff there, they were making changes on the fly, pushing stuff directly out to production in front of millions of users. News Corp saw MySpace like it was a printing press, right? Like, well, let's just install more printing presses. So all they did instead of fixing bugs making things more efficient was go out and buy more servers. By 2006, the site was notoriously unreliable. There were some weeks where 20 to 40% of users couldn't even log in. Facebook, on the other hand, well, Mark Zuckerberg was a computer science major and he understand the idea not only of thinking long-term, but also how to build good tech that would be reliable and be enjoyable for customers. All of this caught up to MySpace eventually. In 2008, Facebook overtook them in terms of number of users and number of page views. They crossed them not only in the United States but globally as well. And from that point, MySpace never recovered. Rupert Murdoch was furious. He had wanted MySpace to hit $1 billion in annual revenue to show how smart he was for doing the deal. Instead, he got something that was in big trouble. In April 2009, News Corp cleaned house. Tom and Chris, they were out, and they brought in a new executive, a person who had used to work at Facebook. The new CEO was Owen van Natta. Their first move was to reduce staff heavily at MySpace. They got rid of 30% of the staff, over 400 people gone. But ironically, Van Natta, he only lasted 10 months. He was frustrated by the lack of change and the culture under the yoke of News Corp. The bleeding continued. MySpace was losing about 1 million users per month. By 2011, they had gone from 95 million active users to just 63 million in about a year. In January 2011, News Corp, because they needed to keep making money, they're a public corporation, laid off another 500 employees, a 47% reduction. By 2010, MySpace was losing $10 million a month. In 2010, as a year, they lost $156 million. News Corp, deciding that this was the end, put MySpace up for sale. They had hoped to get $100 to $200 million. They didn't get any takers. In June 2011, MySpace was sold for $35 million to a digital advertising company called Specific Media. For those of you keeping score at home, that is 94% less than what News Corp paid. Just 6 years earlier. They lost $545 million on the deal, not counting all of the operating losses along the way. In 2013, some investors came along and decided they want to remake the entire site specifically around music. And even Justin Timberlake was part of the investment group, hoping to reimagine the whole thing. It didn't work. You see, social media sites are very binary. Either you're at the place where everybody's already at, or you're a dead site. And in this case, well, Facebook had won, and MySpace had lost. Rupert Murdoch later called the entire scheme a huge mistake, and, uh, analysts in retrospect compared a lot to AOL's merger with Time Warner. Massive disasters in corporate America. MySpace changed hands a number of times over the coming years. Even Time Incorporated, the maker of Time magazine, they owned it for a bit and moved around different media properties. Then in 2019, a botched migration of technology deleted all of the content that had been put on the site before 2015. Over 50 million songs, users' records from forever, they were all deleted. It's just crazy. Hey, the site is still functioning. You can go to myspace.com, but images don't load, things are broken, it's full of bugs. It's basically like visiting a graveyard on the internet. And as of 2023, MySpace gets about 3 million visitors per month. Which is nothing in the world of the internet, while Facebook gets over $3 billion. There's a danger in business when you use your existing concept of how the world works and apply that to a new industry. And in this case, Rupert Murdoch and Fox News had seen the way newspapers had transitioned into TV and they were like, cool, well, the internet's just another version of that. But it turns out, well, they had missed the boat all along. Didn't truly understand how the internet was going to work. And while it's often the case that in business what has worked for you for so long will continue to work, even as the world changes. You got to be mindful that the world may have changed around you, and you have to change your mindset too. And in the case of Fox News and News Corp, they didn't do that, and it cost them hundreds of millions of dollars. All right, let me know what you think in the comments below. I try to read them all. And if you liked this video about botched M&A, well, there's another acquisition that's pretty famous— this one right here, the merger of AOL with Time Warner. I did a video on that one too. Catch you next time.