Battle of the social-networking sites

MySpace inches out YouTube, Facebook and Second Life in a war game over who has the most promising business.

The $1 billion copyright lawsuit Viacom filed against Google's YouTube last week was no surprise to a lot of people.

YouTube's active user base busily posted clips from The Colbert Report and other Viacom-owned programming on a daily basis. Various media companies have asked YouTube to remove the content, but the problem wasn't near to being solved. Among those waiting for the copyright shoe to fall were participants in a "war game" held the week before last at the London Business School.

In the war game, students analyzed the business models of four social-networking and community sites: YouTube,, Facebook and Second Life. Each team presented arguments for why its business seemed likely to be the most successful, and a panel of judges scored them. MySpace was found to have the best business model, although it and YouTube were also found to be vulnerable to copyright battles and zealous government regulators.

Leonard Fuld, president of Cambridge, Mass.-based consulting firm Fuld & Co., organized the war game and discussed its conclusions with CNET

Q: Can you tell me a little bit about this war game--who was involved and why you did it?
Fuld: We've run these war games or strategy games between Harvard and MIT's Business School and at the London Business School for the last two years. We run war games for companies to help them make some critical decisions, strategic decisions. We also conduct war games in which we share the information with the public.

It's very clear that News Corp. is going to want to pump a lot of its own content through MySpace, and it's going to cut all kinds of deals with various media companies.

We generally choose a global subject with a high degree of interest, and this year we chose the virtual communities space because we saw some very high stakes and investments thrown into these companies, and a couple of them are owned by media giants themselves. So Google owns YouTube, and News Corp. owns MySpace. There is also Facebook and Second Life. for the masses. YouTube uses video as its glue to hold the community together. Facebook appeals to the university student community. And , and its an economic community where you can buy and sell test markets.

We were stress testing the (business) strategies one against the other to see who is most likely to succeed. The MySpace team won the game by a fairly good margin. They had a much better argument, which is that content is king. It's very clear that News Corp. is going to want to pump a lot of its own content through MySpace...and it's going to cut all kinds of deals with various media companies. The YouTube team also showed that the company is cutting deals with other media companies, and in fact, the BBC was on (the judges) panel. The BBC made a deal with YouTube.

Who came after MySpace?
Fuld: Facebook and YouTube were nearly tied. Facebook had a score of 142, and YouTube had a 140. MySpace came out with a score of 154, and Second Life came in last at 137. So you see that the spread was not all that large. The students representing each team were judged on creativity, accuracy and the foresight in their strategies. The problem with Facebook is that the students that join Facebook eventually graduate, and Facebook is trying to keep them as part of their network as they grow older. MySpace has, in actuality, the oldest group of members; over 50 percent of their membership is over 35.

The fact that YouTube is trying to attract other eyeballs is a great idea, but whether YouTube itself is a viable entity (long term) is not clear.

So you were saying that because of the defection or attrition rate there are questions about the Facebook strategy?
Fuld: They did not convince the audience and the judges that they really had a strategy that was going to grow them enough, at a fast enough rate. And frankly, how are they going to monetize, which is really the big question. MySpace demonstrated that they not only acted as a network, but they act as a conveyer of media of all kinds of content, and they would be a much more powerful force at learning how to monetize. After all, (News Corp. chief) Rupert Murdoch has made a living out of finding ways of conveying all this content in as many different ways as you can possibly imagine, whether it be by satellite dish, newspapers, television programs. The others have not quite found it, and with YouTube there is a lot of free content (some of it posted without permission of the copyright holder) and, as a result, YouTube is under assault by Viacom. This is a lawsuit that is not going to go away anytime soon.

You've said that as "sexy and cool as MySpace and YouTube seem, they are prone to attack." Are they the only two in the group that are subject to copyright lawsuits?
Fuld: Well, out of these four companies we had in the war game, they were the most susceptible. Don't forget it's not just the fragility that they're experiencing through lawsuits, but you also have government protection of its citizens. There are a number of attorneys general that are looking at the MySpaces of the world. It's like a pincer movement. You've got the private sector with lawsuits and the public sector with regulation.

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