How will the MySpace / Google deal affect Internet traffic?

Mountain View (CA) – It was essentially an idea that was hanging out there in plain sight ever since the inception of the World-Wide Web: easily constructed personal billboards, with the advantage of a brand that gives the placement of one’s message on these billboards a premium value. For people who found deploying their own Web sites too difficult and costly, and maintaining a blog too time-consuming, the idea of MySpace was just waiting to be explored; and history will show that it was an adware company called Intermix that explored it first. But in July of last year, rather than find itself mired in court proceedings for the remainder of its history, it found itself purchased by Rupert Murdoch’s News Corp. for almost half a billion dollars.

Since that time, News Corp.’s Fox Interactive Media has, to its almost uncontested credit, ridden the MySpace juggernaut, to the point where analysts have begun evaluating it above the company’s formidable properties in television, newspapers, and oh yes, entertainment. For a market that was already declaring Google the last great meteoric success story in the history of the Web, MySpace rather quickly cast a long and formidable shadow. In May of this year, a Nielsen NetRatings report showed traffic to MySpace was expanding by almost unthinkable proportions, even within its social networking category: up 367% year-over-year, suddenly eclipsing Amazon as the #8 brand on the entire Internet. Another Nielsen report just last month showed MySpace now commands an estimated 17% of all advertising impressions made on the Web (in other words, nearly one in five online ads that everyone sees, is seen in MySpace) and a staggering 7.2% of all online ads purchased.

So when MarketWatch Internet columnist Bambi Francisco wrote an ominously foretelling column last May, citing this obvious trend, she asked precisely the right question at the right time: If MySpace were to launch its own search engine, with its traffic already 42% higher than that of Google (perhaps a little higher today), would the site become the Internet’s leading search destination, almost by default?

Sure, it took time even for Google to generate a reliable search ranking system. But it accomplished this back in the days when it was a Stanford University research project; MySpace, by comparison, would have the virtue of a pre-assembled audience. “What if you layered the social network of MySpace’s 70 million-strong members over search results,” Francisco wrote, “to get even more relevant results?”

What you would get, we learned today, is a search provider that could grow at such a phenomenal rate that a competitor would pay good money not to see it ever come into fruition. So foregoing the long process of having to invent the time machine, reverse the course of history, and disable Intermix from ever having come into being, Google will pay Fox Interactive Media an estimated $900 million in revenue sharing over the next four years.

That right there is the missing element of this morning’s headline: Google pays MySpace to become its search provider. If TG Daily wanted Google to be its search provider, the monetary transaction would have to flow the other direction.

As Francisco noted, News Corp. chairman Murdoch is one of the smarter and savvier businesspeople in world history, his smarts having been proven again this morning, with his company once again being paid a tremendous sum not to do something. But Nielsen NetRatings remains a bit skeptical, noting in its research reports that even MySpace’s enormous growth and established brand recognition may not necessarily translate into the foundation for a long-lasting business.

“Like reality programming, the concept of ‘reality’ alone, or in this case ‘social networking,’ is not enough,” Nielsen NetRatings senior director of media, Jon Gibs, wrote last May. “In this competitive marketplace, sites also have to provide consumers with distinct content they can identify with.” Meaning, at some point, MySpace will have to distinguish itself with its own original fare, so that its brand will continue to be strong enough to support the value of its advertising. There are other “destinations” on the Web today that gather millions of users, but whose brand recognition has failed to translate into advertising value in the long term.

When last we checked, MySpace was, by virtue of acquisition, fairly close to a company well known for producing entertainment fare. So the generation of this content Gibs is looking for may not be a problem, and the ability for Internet users to link to this content through Google may not be a problem either. As Francisco noted, over 8% of Google’s currently explored links take users to a MySpace destination.

But it’s when content studios enter the picture formally, instead of just on paper, that the entire enterprise starts to change. Just as iVillage looks more and more like NBC every day, there comes the possibility that MySpace could start to look more and more like Fox.

Which is why this comment by Fox Interactive Media president Ross Levinsohn, from a Hollywood Reporter article last month, is perhaps most telling: “It’s so not about social networking anymore,” Levisohn said in response to an inquiry about MySpace’s direction. “It’s about what is next.”

“Next” as in, “Coming up next.” He explained that MySpace needs to develop into a network of portals, or mini-portals (sounding familiar yet?), which lead users from the usual chit-chat and talking amongst themselves, about themselves, into more vital services. He listed sports, games, comedy, and news – things which his marketing team has targeted toward what it calls “Generation Fox.”

To accomplish this, News Corp. president Peter Chernin said elsewhere in this article, MySpace needs to bolster its search capabilities. But in a bold statement (not uncommon for Chernin), he said, “We have no interest in partnering with Google or anyone else on either advertising in general or e-commerce. Those are things we are going to do ourselves.”

Fast-forward just two weeks to this quote from Chernin, from this morning’s joint press announcement with Google: “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. We look forward to expanding our relationship into many new areas over years to come.”

And just what areas would those be? From Google CEO Eric Schmidt’s comment in the following paragraph: “We believe that our innovative technologies will be of real benefit to Fox Interactive Media’s growing number of users… 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.”

Chernin may want to check the wording of this morning’s agreement, to make certain Google knows what it’s paying for.