Google Scores $900 Million Deal With MySpace

In the Web search world at least, the rich may continue to get richer. Google (Nasdaq: GOOG) said late Monday it had signed a US$900 million deal to become the exclusive search provider for social networking giant MySpace.com and other Web properties owned by media mogul Rupert Murdoch, beating out its major rivals in the process.

MySpace has been seeking a search provider for some time. MSN and Yahoo (Nasdaq: YHOO) have also been chasing what's likely to be a lucrative deal that will drive significant traffic and revenue for Google.

Cashing In on Success

The deal calls for Google to be the exclusive search and keyword targeted advertising sales provider for all of Fox Interactive Media's Web sites, including MySpace.com, its wildly popular flagship property.

The search giant will pay at least $900 million to Fox Interactive between the fourth quarter of this year, when the integration of the search function will begin, and the second quarter of 2010. Google may be able to drive two to three times that much revenue by using its AdSense platform to deliver millions of targeted keyword ads to MySpace users over that time.

Peter Chernin, president of Fox parent company News Corp., suggested more deals with Google were forthcoming. "This is an exciting time in our history as a forward thinking media company, and this is just the first of many steps we plan to take with Google," he said. "We look forward to expanding our relationship into many new areas over years to come."

"MySpace.com is a widely acknowledged leader in user-generated content, and incorporating search and advertising furthers our mission of making the world's information universally accessible and useful," said Google CEO Eric Schmidt.

In a conference call, Schmidt said Google was confident it would meet targets that would make the $900 million worth of payments well worth the investment. "Our history is that we agree to these structures, and then we do better because of our synergies," he said.

Partners - for a Time

The deal reflects Google's belief that it can partner with key players to further its expansion -- most of which has so far resulted from the company's own organic growth through its publishers network, Schmidt added.

"We've taken a position this year that we want to focus on broader partnerships," he said.

In fact, the deal was the second high-profile partnership for Google in a single day, following the company's earlier announcement that it would become the distributor for video clips, ads and full-show downloads for MTV Networks.

Investors cheered the MySpace move, with Google shares up more than $5, or about 1.5 percent to $383.44 in midday trading.

MySpace is undoubtedly the jewel of the deal. ComScore Networks ranks it as the sixth-most popular Web destination in the U.S., and it has the fastest growth rate among the top Internet sites. Still, the partnership could turn into something even bigger and better for Google, considering the breadth of Murdoch's media empire. Other properties in the Fox Interactive family include IGN.com, sports site Scout.com and a variety of gaming and movie sites.

For Google, the deal is another competitive victory as well, as it beat out both Microsoft (Nasdaq: MSFT) and Yahoo for the right to deliver search results and ads to the MySpace network, where users add hundreds of new pages of text, photos, video and other media every day.

Yahoo had been the default search and ad provider on the site, which boasts nearly 100 million users, many of them in younger demographic categories that advertisers are finding increasingly difficult to reach through traditional media.

Bidding War?

There was likely fierce bidding for the contract, which has led some to suggest that Google was forced by competitors to overpay. Google may have been willing to pay extra for the ability to prevent Microsoft from gaining momentum in the search space, said JupiterResearch analyst Nate Elliott. Microsoft and Yahoo, meanwhile, may well turn their own attention to beefing up their social networking offerings as a response to Google's win.

Others say the success of MySpace today may not translate into future growth; social networking as a niche can be particularly fickle. In fact, some already see a movement away from MySpace toward newer social networking alternatives.

Meanwhile, it's questionable whether social networking can become a money-making business. The young users of such sites are seen as distracted multi-taskers, already difficult to reach through TV and print media and savvy enough to avoid advertising online if they choose to.

Just as Murdoch's decision to buy MySpace sent shockwaves around the social networking space, the deal with Google again focuses attention on how the space makes money, according to Outsell Vice President Chuck Richard.

"The space has been all about growth and rolling up numbers until now," Richard told the E-Commerce Times. "The conversation is starting to change to how you make it profitable long term. So far, no one has been able to demonstrate they can do that."

Whether Google can change that or not is now the $900 million question.