Is the Partnership Between Google and MySpace a Good Thing?

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With the recent announcement that Google is paying News Corp $900 million for search engine rights on their various Web sites, including MySpace, media and those in the industry have been discussing the pros and cons regarding this enormous deal.

For the most part, the deal appears to be beneficial for both parties. It is great for Google, because they have been able to stave off current MySpace search engine provider Yahoo and keep InterActive Corp's Ask.com and Microsoft's MSN at bay.

Further, Google does not have an established social networking arm like Yahoo and MSN. With the four-year partnership in place, Google has secured a strong position with one of the fastest growing and most popular Internet sites. In fact, industry experts estimate that MySpace will break the 100 million-user mark any day now.

Working closely with MySpace also gives Google in-depth knowledge of MySpace traffic. Once the partnership is under way, Google will see everyone who is in MySpace; this information could be helpful down the road if Google attempts a new social networking arm.

Speaking Wednesday at the Search Engine Strategies conference is San Jose, Google CEO Eric Schmidt expressed his excitement about working with MySpace. Schmidt said that the MySpace deal is a chance for you (advertisers) to "reach an audience that you are not reaching today".

At first glance, $900 million may seem like an enormous price, particularly because News Corp only purchased Intermix Media (the parent company of MySpace) last year for $580 million. However, the agreement isn't as cut and dry as it might seem. Under the new deal, Google has agreed to make guaranteed minimum revenue share payments to Fox Interactive Media in cash, but the payments are contingent upon Fox meeting traffic and search thresholds. The actual amount paid out will be adjusted based on these thresholds (that remain undisclosed). In a conference call, Peter Chernin, News Corp's Chief Operating Officer indicated that, "We're comfortable hitting those numbers."

Of course, it is a great deal for News Corp because they have collaborated with the number one search engine provider and a company that has proven it can monetize traffic. It's been estimated by HitWise that 10% of MySpace traffic left the social network to search on Google anyway, so the formal relationship with Google makes sense from a customer retention and revenue generating standpoint.

In terms of revenue generating through advertisements, things will definitely improve for News Corp. Currently, MySpace runs a single banner ad at the top of each member page. With an enormous inventory of pages and a relatively small sales force, MySpace was filling many of those banners with advertisements sold by networks that trade in remnant advertising space. The result was revenue of only pennies for every thousand ads displayed.

In the new Google world, Google will sell the advertisements for MySpace using its blind auction system, in which advertisers bid for how much they will pay if a user clicks on the ad. Google will then share a large percentage of that revenue with News Corp for those ads displayed on its sites.

So, if growth at MySpace continues at its record setting pace witnessed in recent months, it appears on the surface to be a great deal for both organizations. As for the other major players, the detrimental effects of the move remain to be seen. Yahoo has gone on the record stating that a deal like Google's was not in the best interest of their advertisers and so far, Microsoft has remained quiet.

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