While it's no secret that MySpace (NWS-A) is aging and slowing in growth, the bigger question is what does it mean and if it's a bad thing.
I don't think anybody is surprised that some former users are fleeing the site; that had to happen. When you offer a free service without any commercialization on it, and once the reality sets in that there will have to eventually be a form of monetization to ensure the survival of the site ... once that is implemented, those that hung around for that reason alone will begin to exit the experience. That really doesn't matter for MySpace. This will happen with anybody that starts a business using that model. YouTube will go through the same thing, as well as others.
The key for them will be not alienating those that don't mind ads being put on the site as long as it isn't too intrusive. That's where the true challenge lies.
Now concerning slowing in growth, that was always a given as well. Nobody in history can keep up the type of pace that MySpace has been on; it will always have to eventually slow down. But even with slowing down the Web site was able to increase its growth by 79 percent over the same time last year - still pretty good.
The implication of slowing growth always demands that ways be found to dig deeper into the consumer and going from general interests to specific interests. That's the major challenge facing MySpace now.
One way they're dealing with it is to start adding more professional video to the site. Starting on April 1, they're adding former Disney (DIS) CEO Michael Eisner's short-form original series created for the Web called "Prom Queen," which will be aired online in 90 second segments. This is an attempt to make the site more sticky as it has also dropped in average visiting time per user this year.
Another strategy they're employing is the creating of a service that is similar to eBay (EBAY) in which they enable viewers to sell merchandise or tickets on their profiles. In one deal with Cingular (T) they're also receiving 70 percent of the revenue generated from the $2.99 monthly fee that they charge for access to the MySpace service on their phones.
The major problem of bringing monetization to the next level has been the paltry rates that the company receives for its ads, which generate an average of only about $1.50 per 1,000 users. On video sites they receive around $40 per 1,000 to show you the difference between the two.
They are also looking at ways to connect stronger with those that have a lot of friends within the network. Like any other marketing effort, they're looking for the influencers that love to talk about the different products or services they really like. Tapping into them could create a lot of opportunities to tie marketers together with them.
To me the slowing growth of MySpace is really a good thing. It will force them to face the reality that they must find ways to connect with their audience and make money at the same time. To do this they're looking to create interesting niche profiles, or finding existing ones within the network to create more targeted interests for their users.
They will need to do this because social networking sites that are extremely targeted are beginning to emerge that could really make an impact upon larger sites like MySpace which cater to general interests.
With the average age of their visitors contiually rising, that means that the overall audience will have very specific interests. In just a year it's increased to 41 percent of traffic coming from people over the age of 35, versus 35 percent last year.
This is important because younger people for the most part haven't made their decisions on what seriously interests them, while those that are older have. That means niche, no matter how you look at it.
It's the challenge that MySpace is faced with for the foreseeable future.
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