MySpace is looking to do an about-face.
The once-red-hot social networking site acquired three years ago by septuagenarian mogul Rupert Murdoch, which landed him on the cover of Wired magazine and won News Corp. praise for embracing the Internet ahead of its old-media rivals, has cooled considerably.
New statistics released this week show MySpace has been surpassed by rival Facebook in the U.S. market, where it once dominated, and ad revenue for the site is projected to decline.
Signaling the depth of its problems, MySpace on Tuesday said it was laying off 420 people -- nearly one out of every three employees -- as part of an aggressive restructuring that seeks to make the company smaller and more agile. The action follows a management shake-up in April, in which MySpace founder Chris DeWolfe was replaced as chief executive by Facebook's former chief operating officer, Owen Van Natta.
"Simply put, our staffing levels were bloated and hindered our ability to be an efficient and nimble team-oriented company," Van Natta said in a statement. "I understand that these changes are painful for many. They are also necessary for the long-term health and culture of MySpace."
Van Natta's comments underscore just how troubled Murdoch's big Internet gamble has become in the rapidly changing world of social media. Highly touted initiatives, such as MySpace Music, failed to live up to expectations, even as the site's developers constantly play catch-up to the technological innovations of others.
"MySpace ended up not being the leader that it wanted to be in the social-networking realm, on the tech front, on the ad front -- and now on the usage front," said Debra Aho Williamson, an analyst with researcher eMarketer.
The perceived missteps are numerous. Some observers say it clung too long to a "portal strategy," in which it sought to amass an audience around entertainment content. By contrast, Facebook maintained its focus on features that enhance the social-networking experience, such as the "News Feed" that matches the immediacy of Twitter's staccato updates.
"The speed with which a company like Facebook is able to innovate and keep things fresh is the key to survival in this space," said Charlene Li, founder of Altimeter Group, a research firm specializing in social networking. "There are new things like Twitter that come along. What does Facebook do? It does Twitter . . . and it does it better."
MySpace's miscalculations have cost it ground in its competition against Facebook.
Online audience measurement firm ComScore reported MySpace attracted 70.25 million users in May -- a loss of 3.4 million people from the same period a year earlier. Meanwhile, Facebook nearly doubled the number of users over the same period and overtook MySpace in the U.S., with 70.28 million users.
Still, as Microsoft Research ethnographer Danah Boyd points out, with 70 million users, MySpace has hardly disappeared. "They are still as large as they were a year ago. And a year ago we were in awe of their size."
As the number of MySpace users declines, so does advertising revenue. EMarketer projects that U.S. revenue will fall 15% to $495 million in 2009 from $585 million last year.
Although News Corp. doesn't break out financial details for MySpace, revenue for the media giant's Fox Interactive Media division was down 11% in the most recent quarter from a year earlier, reflecting a double-digit drop in advertising. FIM also includes IGN Entertainment and the movie review site Rotten Tomatoes, although contributions from those businesses are modest compared with those from MySpace.
Murdoch tried to reassure investors about MySpace's direction during the company's earnings call last month, declaring that the management changes at MySpace "will help it regain its momentum."
That task may be harder than it looks. The history of social networks suggests that these sites have the fleeting popularity of a trendy nightclub. The site that's recognized as the birthplace of online communities, the Well, gave way to the more broadly available America Online, which was eclipsed by Friendster -- which itself became passe.
"Each of these services supplants the one before. It takes the golden ring and everyone loves that, and they forget about the last one," said Roger L. Kay, president of research firm Endpoint Technologies Associates. "MySpace made sense at a particular date, that might have been 2003. At that moment, it was the place to be. . . . Now, they have to do some major spade work on the quality of the site if they want to maintain the eyeballs."