Published August 08, 2006
NEW YORK – Google Inc. (GOOG) reached a deal Monday with the owner of MySpace.com to pay at least $900 million in shared advertising revenue and become the exclusive search provider for the popular online hangout.
The deal, which marries the Internet's leading search engine with the top social-networking site, means News Corp. (NWS) will have essentially paid off the bulk of the $1.2 billion it spent last year to acquire both MySpace and the online video-game company IGN Entertainment Inc.
Under the multiyear deal, News Corp.'s Fox Interactive Media unit will add Google search boxes to MySpace and other sites, likely by the end of the year, and Google will provide search results and keyword ads targeted to people's search terms. Google will also get first rights to sell any display ads not sold by Fox directly.
Because the primary reason people leave MySpace now is to conduct searches on Google, according to Fox executives, letting MySpace users enter such queries directly on the site allows it to retain visitors longer and thus boost its advertising potential.
Google's payments, which are contingent upon Fox achieving certain traffic and other milestones that Google expects Fox to exceed, are expected to start in early 2007 and run through the second quarter of 2010.
Driven largely by word of mouth, MySpace has rapidly risen to become the second-busiest site in the United States, behind Yahoo, according to comScore Media Metrix. It has about 100 million registered users, about 90 percent in the United States.
"We think it's important that we move Google to where the users are, and the users are moving to user-generated content and particularly the sites of Fox Interactive," Google Chief Executive Eric Schmidt told analysts and reporters.
MySpace offers a mix of features — message boards, games, Web journals — designed to keep its youth-oriented visitors clicking on its advertising-supported pages. Users stay connected by adding others as "friends" and expand their networks by meeting friends of their friends.
Google will now power MySpace's in-house search, making friends and groups easier to find, said Ross Levinsohn, president of Fox Interactive Media.
News Corp. executives said they had discussions with some of Google's rivals, which they refused to name, and considered building their own search engine, but quickly concluded that Google was the best partner because the two companies shared similar consumer-centric goals. Negotiators worked nearly round the clock over the past five days.
Both sides said they expected additional deals beyond search, "many of which we can only guess on right now," Schmidt said.
Google and MySpace have been developing similar services, including Web journals, video and instant messaging. MySpace is planning to develop a browser toolbar that will integrate Google searches.
MySpace currently uses search results from Yahoo Inc. under a smaller deal reached before News Corp. bought MySpace and Yahoo acquired search-ad company Overture Services.
In a statement, Yahoo spokeswoman Joanna Stevens said the Google deal was great for Fox but wasn't one in which Yahoo had an interest.
"We did not see this opportunity as financially prudent or in the best interest of our advertisers," she said.
MSN officials had no comment.
Danny Sullivan, editor of the industry newsletter Search Engine Watch, said Google made the most sense as a partner because both Yahoo and MSN have competing social-networking services.
Google runs Orkut but does not aggressively promote it. It has a 5 percent ownership in Time Warner Inc.'s (TWX) AOL, but AOL officials have said they weren't trying to unseat MySpace with its new AIM Pages service.
Tim Armstrong, Google's vice president of advertising sales, said Fox sales representatives will likely target large companies, while Google focuses on small and medium-sized businesses. He said advertisers will have a choice of targeting MySpace specifically or reach Google's broader ad network.
Shares of Google increased $4.10, or 1.1 percent, to $377.95 on the Nasdaq Stock Market, while shares of News Corp. rose 2 cents to close at $19.76 on the New York Stock Exchange.
In late-session trade, Google added 1 percent, while News Corp. gained 1.2 percent.
FOXNews.com and MySpace.com are both owned and operated by News Corporation.