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MySpace's latest bid to wring profit from social networking

October 12, 2008 |  7:00 pm

MySpace CEO Chris DeWolfe The Holy Grail for social networks: turning popularity into profits. All have ambitious plans to make money, but few are actually doing so in any meaningful way.

Facebook, for example, has amassed 110 million active users but has not yet hit on a solid strategy to generate the kind of revenue that many expected of the much-hyped Silicon Valley start-up. And some of its advertising efforts have backfired. This year, it's expected to generate $265 million in revenue. Its executives say the big winner in social networking will emerge in the coming years, not coming months.

In fact, founder and Chief Executive Mark Zuckerberg says his company just isn't laser-focused on making money. In an interview with a blogger for the German newspaper Frankfurter Allgemeine Zeitung, he said: "Growth is primary, revenue is secondary."

MySpace has a different philosophy, says CEO Chris DeWolfe. It wants friends and advertising dollars. And it's working hard to get them both.

On Monday, the popular social network is officially launching a self-service advertising program called MySpace MyAds that lets small businesses and individuals create ads tailored to the personal information on its users' age, gender, location and interests. The minimum ad buy is $25. Pricing is based on clicks on the advertiser's profile. The ad campaign's performance can be tracked. And small businesses can charge it on a credit card.

DeWolfe said 3,500 advertisers are already using the program, which has been in ...

... private beta for the past three months. He said that average advertising spend has increased year over year and that revenue is up year over year, but he would not be more specific.

"This unlocks a brand new market for us," he said. "The big difference with MySpace is that we have always been focused on building a real business. The other social networks out there are more focused on either selling their companies in some cases or just building new features."

At least one analyst agrees.

"A year ago, people were questioning whether social advertising even made sense. This is another example of how the advertising model absolutely does work," said Richard Greenfield, managing director of Pali Research. "If you put advertising on the page that is relevant to a given consumer, that consumer will not only look, that consumer will click. ... This is a very intriguing additional opportunity for small businesses looking to target consumers in a portion of the Internet that is still growing rapidly."

MySpace is owned by media giant News Corp. In September, News Corp.'s chief operating officer, Peter Chernin, told a Merrill Lynch media conference that the social network's advertising business was operating "above budget, above where we expected it to be."

MySpace has been making progress, DeWolfe said, with the launch of MySpace Music and the MySpace.com redesign that made the home page less cluttered and more hospitable to advertising.

It also commands a majority of all money spent on social networks, DeWolfe pointed out. That said, those dollars have not come easy.

Expectations for MySpace were ramped up in 2006 when the site announced a three-year, $900 million advertising pact with Google. Bearish comments in January from Google on how hard it was proving to wring profits from social networking were taken as a reflection on MySpace. "We have found that social networking inventory is not monetizing as well as expected," George Reyes, then Google's chief financial officer, said at the time. Under the deal with MySpace, Google must pay revenue even if consumers don't click on ads.

More broadly, there is concern that social networking users do not view ads, no matter where you put them or how well you target them.

DeWolfe disagrees. And he defended the partnership with the Internet search giant. "Our feeling is that things are going quite well. I think their comments were more of a generalization," he said.

DeWolfe also says MySpace has not yet felt any impact from the spreading financial crisis despite the expected slowdown in consumer and business spending on advertising dollars.

"We're cautiously optimistic. We haven't seen a slowdown here," he said.

-- Jessica Guynn

Photo: MySpace CEO Chris DeWolfe. Credit: Genaro Molina / Los Angeles Times

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