MySpace On Life Support?

MySpace CEO Owen Van Natta is unceremoniously shown the door nine months into his tenure and GigaOm‘s Om Malik and others begin calling it yet another irrefutable sign of the great and inevitable unwinding of a once-mighty web property. Malik’s piece is both persuasive and blunt. There is little argument that MySpace has been adrift for some time now and that parent NewsCorp‘s interest in shedding most of its web properties has been a poorly kept secret. Regardless of where MySpace goes from here, what should strike fear in the hearts of many Web 2.0 venture investors and acquirers of web properties is the inconvenient truth that once these companies begin to go bad, righting the ship is an almost impossible task regardless of who is deputized with that thankless duty.

A quick chronology of the broad social networking/social media landscape since early last decade bears some examination as it helps underscore a bit of the brutal Darwinism at work here. A “first wave” of Web 2.0 companies like ICQ, eGroups, Evite and others begat a “second wave” comprising companies such as Friendster and LinkedIn. As has been well-chronicled, Friendster captured early leadership in the burgeoning social networking space, going from 6 million to 20 million users in the space of a year and obtaining venture backing (and instant credibility) from storied firms such as Kleiner Perkins and Battery Ventures. During this nascent period, it was not entirely clear what users wanted and valued from a social network platform, so there was a good deal of iteration and guesswork on what features would be most important to users. The conventional view, offered with the convenient benefit of 20/20 hindsight, was that Friendster erred by not offering the rich user experience that users were demanding and had trouble managing its own growth. MySpace came along and effectively leapfrogged past them, offering pix, blogging, message boards, and other features that users were clamoring for. This clash of the Titans was all playing out at a time when Harvard undergrad Mark Zuckerberg was shuttling back and forth between Calculus and English Lit classes with what would later become current industry behemoth Facebook little more than a crude prototype on his dorm room laptop.

What a difference a few years makes. It’s been said that in the web space one lives by the sword and one almost always eventually dies by it as well. In my view, these words were never more true than when discussing social media/networking platforms. The current early obituaries for MySpace may strike some as a bit of gallows humor and crassly premature, but there is little denying that should MySpace succumb to its current troubles or be reduced to a shell of its former self it should serve as a wake-up call for companies such as Facebook and Twitter. MySpace almost assuredly hurried the demise of Friendster, and Facebook and Twitter could well be responsible for many of MySpace’s current woes, but the dynamics behind this Darwinism has not changed in any meaningful way. The ‘hot, new nightclub’ problem I wrote about some time ago that particularly afflicts social media/networking companies remains unabated without any particular company resolving this issue with any satisfaction. Social networking platform users remain tremendously fickle, are completely portable, and will almost assuredly drift to newer platforms, technologies, and devices.  The key question will be, ‘is there a second Act for these companies?’ Can today’s social networking/media juggernauts continue to expand their businesses fast enough so that once an emerging player begins whittling away users (as is surely inevitable) these companies will have successfully built other core products and services to evolve and remain relevant?

 Facebook and Twitter have made enormous advances and should be credited with continually exploring new ways for users to connect, share and (in some cases) transact on their platforms. Still, the elephant in the room gnawing on the ottoman is now starting on the curtains. Even the nicest, swankiest restaurant in town does not remain on top for long. New establishments pop up, cannibalize the business by wooing diners wanting a flashier, trendier experience, and the older restaurant must evolve or close. Savvy restauranteurs know this and always bake into their financial forecasts a honeymoon period of high growth and revenues followed by a twilight period of declining business and, typically, eventual closure of the business. It’s somewhat remarkable to me that social networking platform start-ups continue to pitch me and other venture investors with investor PowerPoints and financial plans that seem to imply that they will never be outmaneuvered by a newer competitor offering a flashier, if not better, mousetrap that will trigger an exodus of their users. They need to start.