Google pledges $900 million for MySpace honors
When the kids on MySpace search the Net and see the ads served up, they'll have Google to thank.
On Monday, MySpace parent company Fox Interactive Media said it had entered into a pact with Google that spans three years and nine months and gives the search giant exclusive rights to provide Web search results and sponsored links across MySpace. Google also will power search and ads for other Fox Interactive properties including RottenTomatoes.com and Scout.com. FoxSports, which is aligned with Microsoft's MSN, is not part of the deal.
Under the terms of the agreement, which will begin in the fourth quarter, Google must guarantee Fox Interactive minimum payments of $900 million over three years, as long as Fox meets certain traffic and other commitments.
The deal is a blow to Yahoo given that MySpace's advertising results have long been served up by Yahoo's search division. The agreement also ends a months-long hunt by MySpace for a new partner, a quest driven by growing demand among its members for Web search.
On an investor conference call Monday, News Corp. President Peter Chernin characterized the deal as the first of many with Google and said that when MySpace members leave the site they typically jump to the search powerhouse. By integrating Google's technology, search will be seamless for MySpace members, he said.
"Ultimately, in the totality of the deal, Google was the preferred supplier," Chernin said, referring to a highly competitive bid for the business that included Yahoo and all the top-tier search providers.
Google CEO Eric Schmidt said his company was eager for the chance to team up with MySpace because of the social network's trajectory over the last year. In July, MySpace became the No. 1 ranked Web site in the United States based on number of visits, above the numbers of Yahoo Mail, according to research firm Hitwise.
"When we looked at what was growing on the Web, all our internal metrics pointed to Fox Interactive," Schmidt said on the conference call announcing what the executives called a quick but complicated deal.
"It's important to move Google to where users are, and that is where user-generated content is," Schmidt added.
Quick start for Fox Interactive
The pact could be lucrative for both companies, but it's especially key for Fox. News Corp. formed Fox Interactive 10 months ago following the $580 million acquisition of MySpace; and since that time, many investors and executives have questioned whether the social network could turn a profit from its thriving free community. Search-related advertising, a business worth as much as $8 billion annually, is a step in that direction.
For Google, the deal secures an important source of traffic and ad revenue, giving it added exposure to a thriving young audience of millions on MySpace. Roughly 100 million MySpace members will be accessing Google's search tool from the network. That could also calm any fears the search giant might have had about an expanding and unwieldy force on the Internet--social networks--which could have proved a larger threat to the company without such an agreement.
The amount of traffic Google gets from MySpace has more than doubled from about 4 percent early this year to 10.8 percent last week, said Bill Tancer, general manager of global research at Hitwise. When MySpace"What I think that tells us is there are synergies between the two sites," Tancer said. MySpace is the biggest Web site in the U.S. in terms of market share of visits, with more than 7 percent of all visits to any Web site in the U.S. last month, according to Hitwise. The terms "MySpace" and "MySpace.com" are the top two search terms typed into search engines, Tancer said.
Traffic magnets
"When you have a site like MySpace growing at the rate it is, that tells us there is a paradigm shift happening with Internet users. There is a move away from static pages to interacting with (the Web) and posting your own site," he said. "I think it was a smart idea of Google to latch on to the leader in this space."
"So much of Google's volume of traffic was being generated by MySpace," said Greg Sterling, founder of Sterling Market Intelligence. "If they were to lose that search volume, that might be a significant chunk of traffic they would cede to someone else."
Google has taken a similar tack before. For example, it agreed to pay $1 billion for a 5 percent stake in AOL. It also agreed to share search ad revenue with Dell in exchange for Dell pre-installing the Google Toolbar for PC and Web search.
The Fox deal is ironic, Sterling said, given that Google could have bought MySpace for about half the price that News Corp. paid for it, according to an interview with News Corp. Chief Rupert Murdoch in a recent issue of Wired.
Nevertheless, News Corp.'s Chernin said the deal will pay for the company's investment in MySpace on a 100 percent margin, and that the relationship will have a positive effect on revenue this year.
Under terms of the deal, Google will have additional rights to serve search and advertising to Fox properties in the United States and overseas, except for two countries, which Fox executives would not disclose. MySpace executives have said previously that the social network plans to grow internationally, in countries including the United Kingdom.
As far as search, MySpace plans to mesh Google technology and ads with its own features for navigating the Web, member profiles, music, books and so on. Fox executives said that each MySpace member page will contain a Google search box, for example. The company also plans to release a toolbar that will incorporate Google technology.
Google ads will appear in the form of sponsored listings in search results and contextually targeted placements on MySpace pages. Google will also have first right of refusal to sell unsold display advertising on MySpace and other Fox properties.
Danny Sullivan, editor of Search Engine Watch, said the deal will be especially fruitful for Google when it comes to targeting ads within social environments.
"It's going to give them an incredible look into what's going on in MySpace. Given that MySpace is growing so fast, that's a cheap price to pay," Sullivan said.
News Corp.'s Chernin hinted that targeted advertising to members is the Holy Grail.
"The real potential for a home run is combining Google technology with our demographic information," Chernin said.