Google and MySpace: Woulda, Shoulda, Coulda!!

In the latest (July) issue of Wired magazine, Rupert Murdoch claims that Google…

“…could have bought MySpace three months before we did for half the price. They thought, ‘It’s nothing special. We can do that.’”

So that means Google could have acquired MySpace a year ago for about $290 million. Talk about a strategic blunder… the thought of Google and MySpace, combined, boggles the mind. Instead, Google is left thinking of what could have been. And to add insult to injury, it may turn out that not acquiring MySpace may end up being more expensive for Google!

As widely reported, MySpace is now the largest source of search traffic for Google, accounting for over 8% of their inbound traffic as of early May. That essentially means that MySpace is responsible for about $400 million of Google’s annual revenues. Knowing this, MySpace is trying to capitalize by holding an auction for its search business. If Google wins, it will end up sharing a significant percentage of that $400 million with MySpace… John Battelle thinks the split to MySpace will be close to 90%. And Google would need to pay it every year. Needless to say, had Google acquired MySpace, no such payments would have to be made.

In addition to the real costs that Google is likely to incur, there’s also the opportunity cost. Had Google acquired MySpace, they would likely be ranked the #1 Internet property on all user & usage metrics… nudging out Yahoo! from that top spot. It certainly would have been quite a sight to see… being #1 overall, based on its dominance in search fortified with an even greater dominance in the social networking category. It certainly would have cemented Google’s leadership into a near-ineffable state of invincibility.

Having said all that, I personally believe it would be foolish for Google to pay MySpace anything. Even if MySpace strikes a deal with a competitive search engine, it’s highly likely that the users will simply bypass the default and go to Google anyway.

(originally posted at http://gigaom.com/2006/06/27/google-and-myspace-woulda-coulda-shoulda/)