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Compete or cohabit

Compete or cohabit

The Wall Street Journal reported on 4 January that MySpace was planning to lay off up to half its total employee strength of around 1,100. Expectations are that the layoffs could wipe out almost all international staff.

Most analysts see this as an attempt to trim costs before owners News Corp. somehow try to sell the network it bought for $580 million in 2005. Battered by plunging ad sales, poor traffic and an indomitable competitor in Facebook, News Corp. will be lucky to foist MySpace for anything more than pocket change.

This is not for want of effort. Over the last five years MySpace has tried, many times, to stay relevant. The site’s design and management have changed repeatedly. All without any serious impact. The Journal report says that compared with a year ago, traffic on the site was down 15% and ad spending had dropped by 37%. The News Corp. unit that comprises MySpace lost $156 million in the quarter ending September.

As recently as November, MySpace chief executive Mike Jones told the UK’s Telegraph newspaper that the site was no longer a social network competing with Facebook, but was a “social entertainment destination".

For all practical purposes, social networking is now a two-horse race. On the basic side you have Twitter that has 100 million users who post short messages 65 million times a day. And if you seek complication in your network you have Facebook with 500 million members and a recent evaluation of $50 billion.

Between them, Twitter and Facebook have created a system that is self-reinforcing. As more people join on your networks on these two sites, it becomes harder for you to move anywhere else.

There are even greater barriers for competitors. MySpace might want to focus on entertainment. But all it will take for Facebook to do this is to incorporate a media player into the interface. In much the same way it recently added the Places function to allow users to virtually check into real world destinations.

The way, then, to think of Facebook or Twitter is not so much as networks, but as social operating systems dominating that market—in the same way that Microsoft and Apple dominate the computer operating system market. As in that analogy, the smart way to make money is not to invent a new operating system, but to exploit the dominant ones.

As for MySpace, finding a new buyer might be a challenge. But there is at least one moneyed Internet player left pining for a social product. And no one knows contextual advertising like they do.

Is MySpace redundant? Tell us at views@livemint.com

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