Between its 2003 launch and its 2008 peak, MySpace amassed unprecedented numbers of social media users and was valued at billions of dollars. It began outperforming competitors quickly, and the owners sold the platform (under the umbrella of its parent company) to News Corp for $580 million in 2005. Largely catering to teens and young adults, MySpace had a strong presence and was immensely popular for everything from life updates to music drops.
Despite all of this, Facebook, once strictly for college students, quickly overtook MySpace in user numbers, showed higher revenues and profits, and proved its longevity, while MySpace faded into obscurity. With everything going so well for MySpace, how did Facebook crush it so quickly?
MySpace springboarded off early internet message board culture to create something that would allow creative expression and connectivity. Facebook took this a step further with user insights and a better platform that led to more successful ad campaigns. Ultimately, MySpace was incredibly successful at its mission, but it was not able to convert its user base and information collection to create sufficiently high ad revenue that would have continued driving profit growth — especially after it began focusing on short-term revenue gains above long-term sustainability.
In contrast, Facebook effectively leveraged its reach with more engaging, less irritating ads that maintained (and even increased) its audience while extracting increasingly high revenues. MySpace never recovered its leading edge.
Facebook Loomed Even After Initial Success
When News Corp purchased MySpace in 2005, less than two years after its launch, the site had amassed 22 million users and it was growing. MySpace’s founders had learned some important lessons from Friendster, its primary competition, in particular that scalability is imperative for a growing social networking site. Many Friendster users migrated to MySpace to escape frequent crashes and unacceptably long page load times that resulted from insufficient infrastructure. Better infrastructure at MySpace also enabled the company to focus on developing and launching new features rather than spending all of its time troubleshooting.
By summer 2006, Friendster was declining, having succumbed to overloaded servers and user dissatisfaction. MySpace onboarded an average of 200,000 users per day at that time and reported a total of 90 million users, around 33% of whom did not live in the United States. It signed a $900 million advertising deal with Google that led to $30 million monthly revenues and, by 2007, MySpace was valued at $12 billion.
At its peak in 2008, MySpace reported approximately 115 million unique users. However, at the same time, Facebook overtook MySpace in user count. Once Facebook had the users, it needed continued revenue growth, something that MySpace had been struggling with despite its Google deal. Because neither site charged users, they relied completely on monetizing advertisements to turn a profit.
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The Role of Advertising
Social media were new enough at that time that many advertisers saw the platforms as risky, uncharted territory. This did not do much for opening their wallets. Furthermore, as MySpace’s user base deteriorated, so did its ability to make money through ads, and the ad strategy it employed actually drove away more users. Those who stayed, developed ad immunity, which tanked the click-through rate and made the many ads MySpace displayed essentially useless. Caught in this spiral, MySpace was not as successful as Facebook at taking advantage of new advertising platforms to increase its revenue.
A significant difference in the user experience between MySpace and Facebook was the ad quality. As Facebook grew, it increased the quantity of ads on the page, something that had hurt MySpace. Many users reported frustration with MySpace due to intrusive, slow ads that made basic platform use more challenging. Some users complained that MySpace had sacrificed their privacy, either due to breaches or for financial gain by selling data to advertisers.
Facebook on the other hand reduced or eliminated the strategy of using pop-ups and banner ads in favor of the sidebar ad layout. This strategy continued to present ads to the audience, but it made them less intrusive, a factor that some users cited as a reason, among others, for switching to Facebook.
Once Facebook overtook MySpace’s user count, it was in a good position to experiment. The company needed to find a new way to monetize; copying MySpace’s ad strategy wasn’t going to work forever, and users had already started to complain. Of course, Facebook has had its own issues with data privacy, another reason they needed to find alternative advertising ideas. Happily for the company, a solution was around the corner.
The Impact of Branded Content
In 2007, Facebook started allowing third parties to develop games and applications for the site, something MySpace took another 18 months to adopt. By 2014, companies like Buzzfeed had begun releasing branded content, often using Facebook as a distribution platform. This symbiotic relationship drove traffic to Facebook, increased user engagement, and drew in more advertisers for Facebook — all increasing the ad revenues. In 2011, Facebook began increasing its ad prices as the 166 million user base continued to grow.
Buzzfeed still releases videos on Facebook, and those videos are now long enough to be monetized. When Buzzfeed creates a video, Facebook places ads from paying partners within the video, which brings in revenue for the platform that is then shared with the creators. Taking full advantage of this, Facebook now encourages other content creators to do the same thing. Branded content gives users something real to engage with rather than something to ignore, which makes people more likely to click (and earn Facebook a few cents).
Besides the benefits to the users, Facebook also performed better than MySpace for advertisers themselves. Reportedly, Facebook’s ad space reached more people and got more engagement than MySpace could, and perhaps most importantly, Facebook made the ad placement process easier and simpler.
Despite MySpace’s auspicious start, Facebook was better able to pull in users and advertisers due to its improved use of technology, advertising trends, and understanding its audience.
Part of the problem may have been that although MySpace had a substantial number of users in the coveted 18-29 age group, most of its user base skewed younger. Less disposable income resulted in fewer conversions for advertisers. If a person doesn’t have much money, the likelihood that she will buy a product or service from an advertiser is low. Facebook, thanks to launching with college students, catered to a slightly older group that was more able to make purchases. Complicating things, the economy crashed in 2008, which forced marketing executives to be more judicious with their ad spend. Ultimately, they favored Facebook.
Lessons for Growing Companies
The rise and fall of MySpace makes one thing abundantly clear: Never get comfortable. MySpace succeeded initially in part because its founders understood that a platform needs stable infrastructure and abundant resources to grow. As technology and marketing strategies develop, companies have to be early adopters to stay competitive. No less important is scalability, or being able to provide more products and services as the customer base increases. If a website lacks the server capacity to handle the traffic it’s getting, upgrades are not only advisable but necessary.
Similarly, if a company cannot market or monetize as needed to sustain itself, it becomes easy pickings for competitors. This is important for more than social media platforms. Any business, regardless of size or industry, must be able to stay one step ahead of consumer demands.
Growth for growth’s sake is not necessarily good. MySpace, having learned from its predecessors, tried to scale sustainably, as did Facebook. When News Corp acquired MySpace, however, long-term vision was lost in favor of corporate values and a focus on metrics. While technologically MySpace was able to sustain its users, other components of the business plan suffered, namely product innovation. Facebook implemented both a solid infrastructure and a controlled rollout, limiting the number of users who could sign up at once, thus giving the company time to adjust for the increased numbers.
Prioritizing the User Experience
Rather than scrambling to meet demand, Facebook rationed the supply at a sustainable pace. The more carefully paced growth gave Facebook time to innovate, creating new things for the site (News Feed, for example) that improved the user experience.
Don’t underestimate the power of advertisements that people actually want to see. Although MySpace understood that revenue would need to come from advertising dollars, Facebook did a better job of understanding the types of advertising that would be more attractive to users. Or, if not attractive, at least the ads would not be as frustrating. Users follow the path of least resistance (in this case, the path from MySpace with its cluttered, slow pages to Facebook’s more streamlined and interesting experience).
Finally, it’s worth noting that despite scandals aplenty and a shrinking user base, Facebook remains ubiquitous over a decade after its founding. So far, they’ve still got it.
