Four Morals From MySpace's Fall

This blog first appeared as Steve Wunker's piece for Forbes

By Steve Wunker

What can we learn from the disintegration of MySpace – just five years ago a media darling and now in the tech industry’s dustbin?  It would be easy to blame the fall on inept management, except that the company’s leaders clearly were not dumb.  Rather, the seeds of demise were laid in the company’s using four traditional approaches to business in a new market where rapid change required different thinking:
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1. Exploiting opportunity fast. When MySpace was founded in 2003, the social networking space was exploding.  The company believed that it needed to get big fast, and so it pulled whatever levers it could to grow.  Its parent company, eUniverse, had a list of 20 million e-mails which it used liberally to publicize the service.  The site attracted masses of teens, but their shared interests revolved around passions like favorite bands and movie stars.  Facebook moved in a more focused way, because it had to.  Mark Zuckerberg in his dorm room lacked a corporate parent with deep pockets, so he focused tightly on a market he understood – college students.  Students on a campus had a lot more in common than a passion for Justin Timberlake, and so they had more to share on the network.  While Facebook had far fewer users than MySpace in its early days, those users were clustered in a way that gave the site a critical mass to make it compelling.  Counter-intuitively, in a new market the winners focus tightly on a foothold customer even if they constitute a small portion of the total pie up for grabs.  By starting small, they can move quickly to commercialize their idea.  They can also learn rapidly from this foothold and adjust accordingly.
2. Leveraging infrastructure. MySpace came to market quickly in part because it used a software development platform called ColdFusion.  Facebook, by contrast, used open source tools which took longer to deploy.  Unfortunately for MySpace, ColdFusion provided the company with an inflexible technical infrastructure.  (Note--the comment thread below establishes that it was the inflexible implementation of ColdFusion, rather than the underlying platform itself, that created this problem).  When threats emerged like spam and phishing, MySpace was slow to respond.  The accountants love to leverage fixed costs in a company, and MySpace was not about to tear up its infrastructure to get more flexible.  Alas, adaptability is one of the biggest advantages a company can have in a new market, and that doesn’t show up on an accountant’s spreadsheet.  Facebook could move with the speed of the emerging industry, while MySpace could not.
3. Catering to lead customers. Some of the earliest users of MySpace felt comfortable with technology (no surprise there), and they wanted to configure their pages to reflect their individuality.  Bands wanted to appear distinct too.  But most people aren’t tech-heads or rock stars, and the jumble of page appearances was confusing to users just getting oriented to social media.  Facebook had a far more consistent look-and-feel.  Zuckerberg was designing for the masses, not for the most vocal and atypical early adopters.
4. Take the money on the table. If people were visiting MySpace, the company was going to be sure to claim all the advertising dollars their usage could support.  It was not going to make other start-ups rich.  This is often good practice in established markets, where there is a fixed pie of profit of fight over.  In new markets, the real battle is to generate consumption.  Facebook opened up its platform to application developers like Zynga, and it benefitted hugely even while these upstarts raked in huge revenues.  Established markets can be zero-sum games, whereas new markets are about positive sums.

Ultimately, MySpace fell victim to hubris.  Chasing after market leadership, it moved too fast, too confidently, and too traditionally.  Facebook was more focused, adaptable, and open to fresh thinking.  With a market value now roughly 2,000 times that of MySpace, Facebook has proven the value of using new rules in new markets.

Click to view a longer piece on strategy for capturing new markets.