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Myspace Sale Prompts Warning To Startups: Business Planning

MySpace fate can be avoided with planning: analysts

By Michelle Hammond
Thursday, 30 June 2011

Start-ups have been urged to have a backup plan to protect themselves from competitors and to stick to their niche market “like glue”, following the sale of embattled social networking site MySpace.


MySpace has been purchased by online advertising firm Specific Media for $35 million, just six years after News Corp acquired the site for $580 million.


MySpace was the leading social networking website when it was purchased by News Corp but has been shedding members to Facebook and Twitter in recent years.


Kevin Noonan, research director at technology analyst firm Ovum, says MySpace’s downfall should serve as a lesson for other companies.


“There’s no point taking on the competition in particular areas… For small businesses, it is now more important than ever to understand your niche market and stick to it like glue,” he says.


According to tracking firm comScore, MySpace had 21.8 million unique monthly visitors in August 2005 in the US, compared to Facebook’s 8.3 million.


However, Facebook surpassed MySpace in the number of US visitors in May 2009 and has kept adding users since then, while MySpace’s membership has eroded.


In May, Facebook had 157.2 million unique monthly US visitors, compared to MySpace’s 34.9 million. Facebook has nearly 700 million members worldwide.


MySpace has gone through a series of layoffs, chief executives and makeovers in recent years as News Corp sought to cut losses at the site and reverse the decline in membership.


As its popularity waned, the site has fashioned itself as a hub for music fans, but it hasn’t been enough to bring the site back from the brink, resulting in the meager sale price.


Foad Fadaghi, research director of market analyst firm Telsyte, says the fast-paced nature of social networking demands “some sort of unique IP”.


“There has to be something unique about your product or your patent pool that allows you to leverage that in the space you find yourself in. You also need a backup plan or an alternative approach that can be used,” Fadaghi says.


Fadaghi says while MySpace has lost huge numbers, people still use the site and are familiar with the MySpace brand, placing it in a unique position.


“There are things you can do to try and have a comeback and re-launch a site. In MySpace’s case, it’s about using that brand [awareness] to bring to the market something new,” he says.


Fadaghi says BlackBerry is one example of a brand that is attempting to “catch up and reclaim its crown”, reforming as Research In Motion to redevelop the brand with a new operating system.


“However, in the online industry it can be very difficult to reposition yourself if you’ve become technically obsolete, which is kind of what happened to MySpace – it became technically obsolete to Facebook,” he says.


“If you’re in an industry where the business model is all about marketing, you can [reclaim market share]. But in tech, it’s about being new and relevant, with more innovative products.”


According to Fadaghi, MySpace should perhaps have aligned itself with another competitor, which would have enabled the two entities to combine their resources.


“But at the end of the day, they didn’t have a product as good as their competitors, so there was nothing much they could do,” he says.

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