Myspace layoffs are part of broad restructuring

Rupert Murdoch, the head of media giant News Corp., was brimming with confidence when his firm’s Myspace was the reigning social networking site three years ago, noting it was “not just looking up friends,” as rival Facebook was doing.

Now Myspace could use some friends.

Hobbled by dramatic declines in advertising revenue and monthly visitors, Myspace announced a sweeping restructuring Tuesday that will result in the loss of 500 jobs worldwide, or about 47% of the workforce at the Beverly Hills company.

Meanwhile, owner News Corp. is entertaining inquiries from potential buyers, according to people familiar with the matter. One possible suitor: Yahoo Inc.


But whether putting two troubled Internet companies together would yield a stronger single entity remains unclear, and the idea is sure to meet with skepticism in some quarters. Yahoo declined to comment.

Myspace Chief Executive Mike Jones said the job cuts were necessary to put the site on a path toward profitability after its relaunch last fall as a “social entertainment destination” for young users.

“The new organizational structure will enable us to move more nimbly, develop products more quickly and attain more flexibility on the financial side,” Jones said in a statement.

Tuesday’s announcement was the latest in a string of setbacks for Myspace, which is joining a league of once-powerful Internet companies such as AOL and Yahoo that have long since lost their dominance. Dave McClure, founding partner of 500 Startups, which invests in early-stage Internet ventures, said Myspace held great promise and could have beaten Facebook, Twitter Inc. or Zynga Inc. Instead all three now overshadow Myspace.

“Myspace never really figured out which one it wanted to be,” McClure said. “For the life of me I don’t know why they weren’t able to pull it off.”

Social networking is an incessantly evolving market where early entrants like Friendster Inc. and Internet leviathans like Google Inc. have stumbled while upstarts like Twitter and Zynga have thrived.

None have enjoyed the success of Facebook, the world’s most popular social networking service, with more than 500 million users. Analysts say Facebook set out a clear vision of connecting people and aggressively innovated to achieve that vision.

There’s no short explanation for Myspace’s stunning fall, but people with knowledge of the situation say the social network struggled to innovate once it had been absorbed by the old-media giant.

Also, Myspace’s managers came under pressure to wring profits from the site, while Facebook’s private investors were willing to absorb losses to invest in the future. Facebook engineers were ordered to make the site more engaging for users while more independent software developers were attracted to make popular applications for the site.

“Facebook was innovating in so many ways,” said Charlene Li, founder of research firm Altimeter Group.

Facebook now boasts three times the number of users in the United States, who spend, on average, 80 minutes a week updating their status and photos, playing games and checking what their friends are up to — compared with 21 minutes for those on Myspace.

The first signs of Myspace’s waning fortunes appeared in 2008, when News Corp. reported that it was falling short of its $1-billion revenue projections for the site, not long after Murdoch had been predicting the site would soon be yielding $300 million annually in profits. By that time, Myspace had lost the focused attention of its most powerful internal advocate, Murdoch.

The company’s chief executive became absorbed by the acquisition of Dow Jones & Co., which gave him control of the Wall Street Journal. Without Murdoch’s interventions, Myspace became mired in management logjams, said a person with knowledge of the matter.

News Corp. installed a new chief digital officer, Jon Miller, in April 2009 to shake up its Internet operations. That same month, founder DeWolfe resigned and was replaced by Facebook’s chief operating officer, Owen Van Natta. Two months later, Myspace laid off about 420 people in the first wave of restructuring that sought to make the company smaller and more agile.

That was the start of a period of management turmoil and infighting at senior levels. Van Natta left the company within nine months, to be succeeded in February 2010 by co-Presidents Jones and Jason Hirschhorn. By June, Hirschhorn had also departed.

Unified under Jones, Myspace relaunched in October with a new logo, a fresh look and a refined focus as an entertainment destination for Generation Y. Myspace sought to attract 13- to 35-year-olds looking to discover new music, movies, TV shows and games — and talk with like-minded fans.