MySpace Asking 30% of its People to Go
Here’s
another case that confirms the fact that social networking business is
in dire straits. After Facebook’s recent decision to raise capital from
external sources, MySpace announced Tuesday that it will reduce its
staff by nearly 30%.
MySpace
says this is being done as part of a plan to restructure itself into a
more efficient business. This restructuring plan crosses all U.S.
divisions of the company and lowers the total number of domestic staff
at MySpace to 1,000 employees.
“Simply
put, our staffing levels were bloated and hindered our ability to be an
efficient and nimble team-oriented company,” said MySpace chief
executive officer Owen Van Natta. “I understand that these changes are
painful for many. They are also necessary for the long-term health and
culture of MySpace.”
Last
month, Digital Sky
Technologies (DST), an investment group with significant stakes in
Eastern European and Russian internet businesses, decided to make a $200
million investment in Facebook. This is in exchange for preferred stock,
representing a 1.96% equity stake at a $10 billion valuation. (Read:
Funds Flow for Facebook from Digital Sky)
But why
these social networks that attract millions of consumers are in
financial trouble?
Studies infer that most social networking
properties are struggling and are not quite viable. Although they’ve
managed to make millions of members, social networks hardly have any
definite revenue model. Advertising revenues are negligibly low on
social sites because most users are not interested in ads.
While 83% of the Internet population (ages
13 to 54) participates in social media – 47% on a weekly basis –
less than 5% of social media users regularly turn
to these sites for guidance on purchase decisions. A new
report by Knowledge Networks revealed this on May 20.
According to the report, only 16% of social media users say they are
more likely to buy from companies that advertise on social sites.
With
similar findings research firm
IDC says ads on social networking services
(SNS) have lower click-through rates than
traditional online ads and they also
lead to fewer purchases. IDC expects that lower-than-average ad
effectiveness on SNS will continue to contribute to slow ad sales unless
publishers get users to do something beyond just communicating with
others.
Even
YouTube, a seemingly popular social media site for
video sharing, is struggling and costing the owner Google
$1.65 million a day. The revelation comes from Internet Evolution that
discusses the future of Internet.
“MySpace grew too
big considering the realities of today’s marketplace,” said Jonathan
Miller, News Corporation’s CEO of Digital Media and chief digital
officer. "I believe this restructuring will help MySpace operate much
more effectively both structurally and financially moving forward."
MySpace
is a division of News Corporation.
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