by Patricia Sellers
(Fortune
Magazine) -- One night this past April, Tom Anderson was surfing MySpace.com, as he does for hours every night, when he spotted a link
to something called kSolo on another member's profile page. The
service, Anderson learned, lets you record karaoke online and e-mail
songs to friends. A karaoke man himself (he used to be the lead singer
in a band called Swank), he immediately tried kSolo - playing a
scorching anthem called "Cowboys From Hell" by the thrash-metal band
Pantera. "It was cheesy but great," Anderson says. The next day, he
told his business partner, Chris DeWolfe, to check out the site.
Just
three years ago, the exchange between Anderson and DeWolfe might have
ended there, a failed musician and a frustrated entrepreneur bonding
over karaoke. But Anderson and DeWolfe don't just obsessively use
MySpace - they founded it. Last July, News Corp (Charts). agreed to buy
their company, and they decided to stay on as president and CEO.
Amazing space
In three years MySpace has grown from a tiny music site into a pop culture powerhouse.
October 2003
MySpace starts a Web site for friends of Chris and Tom and local music promoters.
January 2004
MySpace officially launches
April 2004
MySpace music debuts as a site within the site
October 2004
MySpace premieres REM's "Around the Sun," letting users listen before the album hits retail.
January 2005
Redpoint Ventures invests $15 million in MySpace and its parent Intermix Media.
March 2005
MySpace premieres NBC's "The Office" as a full-length Webisode before the show hits TV.
June 2005
MySpace passes Google in Web traffic.
July 2005
News Corp. CEO Rupert Murdoch buys MySpace parent Intermix Media for $580 million.
October 2005
MySpace
stages its first large-scale event, a free concert at Dodger Stadium
that draws All-American Rejects, Dashboard Confessional, and 10,000
fans.
November 2005
MySpace teams up with Interscope on MySpace Records.
January 2006
Adam Horowitz and fellow Beastie Boys help launch MySpace Film at the Sundance Film Festival.
May 2006
MySpace starts MySpace Mobile with fledgling cellular provider Helio.
June 2006
MySpace launches in the United Kingdom with more than one million registered users.
July 2006
MySpace Comedy, featuring 8,000 comedians such as Carlos Mencia, launches.
August 2006
MySpace Australia opens for business with more than one million registered users.
So
DeWolfe tested kSolo too, playing a Bon Jovi song from the '80s. He and
Anderson quickly contacted kSolo and invited its founder, Nimrod Lev,
to fly from New York to Los Angeles to meet with them. Meanwhile, they
sent word to News Corp. president Peter Chernin, who told his boss, CEO
Rupert Murdoch, about the music site. Within a week, the media mogul
struck a deal to buy kSolo as a trinket for the expanding MySpace
empire.
It's nice to have a billionaire sugar daddy to help you
build the world's fastest-growing Web site. It's even nicer to earn a
really great living doing what most guys do for fun. Out of their
personal passion for the music scene in Los Angeles, where they live,
Anderson, 30, and DeWolfe, 40, created an Internet site to promote
local acts and connect fans and friends ... who connected friends ...
who connected friends ... until, by last summer, 20 million people had
joined MySpace. The two had a friendship based on business, then they -
quite literally - founded a business based on friendship. And when
Rupert Murdoch paid $580 million for MySpace's parent company, Anderson
and DeWolfe - though reluctant to do the deal - each made millions.
MySpace
is nothing short of a cultural phenomenon. For those who haven't logged
on, the site is the online equivalent of your high school lunchroom,
your college quad, your favorite bar. Except it doesn't sell much of
anything, at least not yet. It's simply a place to hang out and express
yourself. The users, the hardest core being teens and twentysomethings,
post profiles and decorate them with photos, music, videoclips, blogs,
and links. The site is home to 2.2 million bands, 8,000 comedians,
thousands of filmmakers, and millions of striving, attention-starved
wannabes - 100 million, actually. MySpace passed that number of
registered users in early August, and on a typical day, it signs up
230,000 - roughly the population of Scottsdale. A year ago it passed
Google in terms of traffic, and now MySpace ranks second to Yahoo in
page views, with one billion daily, according to comScore Media Metrix.
While there are hundreds of "social-networking" sites - Facebook,
Friendster, Xanga, Bebo, Cyworld, to name a few - MySpace, the most
risqué and chaotic of the majors, accounts for 82% of traffic in the
category, according to Hitwise, a leading Web site tracker.
With
Murdoch's backing, the site has an astonishing number of projects
underway: a Google pact to sell text ads on the site; a MySpace Records
label; a VoIP feature to let users call one another; international
sites in Britain, Australia, France - with nine other countries in
Europe and Asia coming soon. DeWolfe counts 20 new products in the
development pipeline. "We think we can extend MySpace around the world
and it can be a major force globally," says Murdoch, whose Internet
ambitions have helped drive News Corp.'s stock up 18% this year.
That,
however, puts the MySpace guys in an awkward spot. They founded their
Web site on the principles of user control, grass-roots growth, and
authenticity. "The users govern the site," DeWolfe says adamantly. But
now he and Anderson have News Corp.'s financial targets to hit, a
"chief revenue officer" to contend with, and serious pressure to make
MySpace safe for advertisers. Already there's a backlash. Witness
sightings of "Tom Is Not My Friend" T-shirts and fake Murdoch profile
pages headlined FUQ RUPERT and EVIL BILLIONAIRE TYRANT! The question
facing the MySpace founders now: Is it possible to sell out without
selling out?
A site with a 'soul'
It was well past midnight,
and Tom Anderson was hard at work. He had been hunched over his
computer for 8½ hours, refused to break for dinner, and showed no signs
of letting up. Why? Well, the "work" was actually scouring MySpace for
amazing indie bands. After a meeting to brainstorm about a new venture
called MySpace Records, he and Interscope Records senior vice president
Luke Wood decided to take a look around for some promising talent. As
often happens, MySpace addiction set in. "We sat around his computer
from 6 P.M. to 2:30 in the morning and did nothing but listen to
unsigned artists," Wood recalls about that night last year. "Tom
experiences music in an innate, primal way."
The hours may be
long, but that's what happens when your main leisure activity is also
your job. "Tom lives inside the product," observes Chernin. That's not
just a metaphor: Anderson is automatically the first friend of anyone
who joins MySpace, and as the public face of the operation, he's
photographed with celebrities at company bashes, approached for
autographs on the street, and deluged with e-mails from users. (He has
put blocks on his e-mail, but if he hadn't, he says, "I would be
getting more than 40,000 a day. Now I think I get 2,000 or 3,000.")
Successful
startups "tend to have one person who is the soul of the business and
inherently understands the users," says Geoff Yang of Redpoint
Ventures, who invested $15 million in MySpace early last year. "The
other is the smart businessperson who has a compelling vision."
Anderson, then, is the "soul." Typically wearing a trucker hat and
flannel shirt (even on 90-degree L.A. days), he has an unvarnished,
forthright manner that makes him seem almost childlike. He spends a lot
of days toiling with the techies at MySpace to put out fires or add new
features to the site, though lately he's been getting pulled into
meetings about partnerships and ad ideas. He sees his role as the
"guardian" of the user. Most evenings he's at home alone, surfing the
web. Since his band Swank broke up in 2000 (he clashed with a fellow
band member), Anderson has had little time to play his guitars or go to
L.A. clubs.
Still, Anderson has racked up 100 million online
friends. DeWolfe, meanwhile, has 177. Married to a former record
executive with his first baby on the way, the businessman with the
vision is a lot more polished than Anderson and a lot more guarded. In
person, with his laconic charm, shaggy gray hair, and string-bean
frame, the 6-foot-3 DeWolfe comes across as uncompromisingly cool.
Though he paints himself as a workaholic - at the office from 9:30 A.M.
to 9 P.M. most nights - he allows that he spends weekends at a beach "a
little north of here" (a downmarket rental in Malibu). He begs me not
to name the chic Colorado town where he skis in the winter (it begins
with an A). Asked why he's so guarded, he replies anxiously, "I'm - by
nature, I'm not a flashy person. It's just not who I am."
A laid-back, anti-authority vibe
Unlike
Anderson (and most MySpace members), DeWolfe prefers not to express
himself. He keeps his MySpace page private, though he agrees to
"friend" me so I can see it. Under "Chris's Interests" he lists: "Work,
trying to figure out new people I meet, going out to bars/clubs (once
in a while) ..." Hogan's Heroes and Lost in Translation - about a
washed-up actor searching for meaning in Tokyo - are first on his list
of favorite TV shows and movies. In the "About Me" section, he writes,
"Usually friendly - but sometimes prickly. I like being around creative
people, funny people, crazy people."
MySpace's laid-back,
anti-authority vibe has everything to do with where its founders came
from. DeWolfe, who was raised by two teachers in Portland, Ore., bucked
the family tradition by studying business at the University of
Washington and then going to USC's Marshall School of Business, while
Anderson, whose entrepreneurial father "had one crazy idea after
another," rebelled by majoring in English and rhetoric at Berkeley,
bouncing from band to band, and eventually going to film school. The
two met in 2000, when Anderson, deep in student debt, answered an ad to
earn $20 testing a product for Xdrive, a data-storage company. He hated
the Xdrive product. But DeWolfe, who had landed a gig as the company's
head of sales and marketing, liked Anderson's candor and offered him a
job.
"Chris rescued me from a lifetime of unemployment," says
Anderson, who immediately took to DeWolfe's hands-off style. "I
remember, I asked Chris, 'What do I do?' He said, 'Go figure out how to
make money.' That's why I always liked working with Chris. It was
never, 'Here's the job I want you to do.'"
While Xdrive ended up
in bankruptcy (a casualty of the dot-com boom), the pair's second
venture, an Internet marketing firm called Response Base, took off:
Within a year they sold it to an outfit called eUniverse for several
million dollars and joined the company. Around this time, in late 2002,
Tom decided that social networking should be their next big bet. "I had
looked at dating sites and niche communities like BlackPlanet,
AsianAvenue, and MiGente, as well as Friendster," he says, "and I
thought, 'They're thinking way too small.' "
It didn't take much
to convince DeWolfe: At USC he had written a business plan for a
community Web site that he called Sitegeist. "I gave him an A-,"
recalls Paul Bricault, a William Morris Agency executive who taught the
course. Bricault remembers little about the young DeWolfe or Sitegeist.
"But I gave out about one A per semester, so it must have been a decent
business plan." (Incidentally, Bricault now works for MySpace: DeWolfe
and Anderson hired William Morris to introduce them to media and ad
world players.)
Their site launched in 2003, with Anderson and
DeWolfe inviting local bands and club owners to post pages and allowing
other users to become their "friends." DeWolfe loved those early days
when he and Tom had time to go to the Viper Room and other clubs to
check out new music every week: "It was pretty much a great way to
work." The bands turned out to be their best marketing tool. "All these
creative people became ambassadors for MySpace by using us as their de
facto promotional platform," DeWolfe says, adding, "People like to talk
about music, so the bands set up a natural environment to communicate."
(They didn't know what to name the site until one friend reminded
DeWolfe that he had, a year earlier, bought the URL myspace.com,
thinking that he might start a web-hosting company.)
Hating the
idea of any rules, Anderson and DeWolfe insisted on building an "open"
site. Any stranger could peruse any profile, join the community, and
post pretty much anything he or she pleased. That made raising money -
at least at first - tough. "We'd get calls from investor types who
wanted to meet us," recalls Anderson. "They would say, 'Your site isn't
professional. Why do you let users control the pages? They're so ugly!'
" DeWolfe says that just about everyone, including key executives at
eUniverse, told them, "You can't make money from user-generated
content."
Then the founders got lucky. In February 2004,
eUniverse recruited a new CEO, Richard Rosenblatt, who embraced social
networking. "I told them, 'I think this is where the future is going,"
recalls Rosenblatt. "I allowed them to hire tech people and invest in
additional servers. Euniverse was losing $4 million a quarter, and even
though they had no revenue, I pulled money from our profitable
businesses to support MySpace because I thought Chris and Tom were the
most innovative marketers I'd ever met."
Friendster flounders, MySpace moves in
But
MySpace just kept signing people up. At the same time, rival
Friendster, which was once the hottest social-networking site, was
stumbling badly, giving Anderson and DeWolfe a lucky break and a
roadmap for what not to do. "We grew so fast and could never keep up,"
admits Friendster president Kent Lindstrom. "Our page-load times were
20 to 30 seconds when MySpace's were two or three seconds." Secondly,
Friendster management sanitized its site - much to Anderson's delight.
"They had no room for fakesters," Anderson says. "If a dog or a city or
an idea had a page, they would delete it. Could anything better have
happened to us? People said, 'I'm going to go to MySpace because I can
do what I want there.' "
When News Corp. came knocking in June
of 2005, Anderson and DeWolfe were torn. They and the board of their
parent company, which had been renamed Intermix Media, needed capital
to keep up with the site's torrid growth. Having lived through the
dot-com bust, the money they'd make was no joke either. But the
founders were wary about submerging their "anti-authority" site to,
well, authority. DeWolfe told Ross Levinsohn, who heads News Corp.'s
Fox Interactive Media unit, that he worried about "losing the brand,
the personality, the culture." And losing it to vast, conservative News
Corp., at that! "They weren't too keen on the deal," admits Murdoch.
"They could get more money later, if they waited to sell. And they had
a reluctance about being corporatized." A meeting in Murdoch's office
on the Fox lot - at which Murdoch vowed, "We're not going to tell you
how to run the site" - convinced DeWolfe it could work. (How much did
DeWolfe and Anderson make? According to public filings, DeWolfe got
$2.9 million from the deal, but that's surely conservative. The pair
got millions more from their stake in MySpace Ventures - a minority
owner of the site - plus handsome contracts when they joined News Corp.
The company won't discuss the matter.)
Growing pains
Murdoch
did have some ideas, though, about running the business, as Anderson -
"who is nervous that we'll put him in a straitjacket," according to
Murdoch - quickly learned. A few months after the acquisition, News
Corp. disclosed plans to move MySpace from Santa Monica, a block from
the beach, to Beverly Hills, where News Corp. was consolidating its
Internet properties. Anderson and DeWolfe were horrified. Over drinks
at Casa del Mar, a hotel in Santa Monica, Anderson laid out his
objections to Chernin, arguing that the move would wreck the laid-back
MySpace culture. "What I like about Tom is that he's so
straightforward," says Chernin. "If something's bothering him, he comes
right at you." Chernin listened and said he'd call in a couple of days
with his decision.
"I'm a little lost," says DeWolfe. We are
winding through MySpace's spanking-new headquarters in TheirSpace - the
second floor of Fox Interactive's sleek gray granite office building on
Maple Drive in tidy Beverly Hills. A maze of gray cubicles and red
walls, the MySpace space even smells new. Compared to mellow Santa
Monica, this is, well, different. There are, for example, no good lunch
spots nearby, unless you walk five blocks to the Four Seasons Hotel.
Not exactly a MySpace hangout. So until the Fox cafeteria opens in
September, MySpace provides free boxed meals - breakfast, lunch, and
dinner - to all 300 employees.
Do they hate the place? No,
insists DeWolfe, but he says, "We've gotten a dose of reality. We don't
own the site anymore." Anderson is more candid: "Before, I could do
whatever I wanted. Now it takes more time to get people to agree on
things. All the budget reviews and processes. That can be a pain. But
it's not stopping us."
Rapid Expansion
The upside, of course,
is the sugar-daddy factor: that deep-pocketed parent to back your best
ideas. Of the 20 new products in development, DeWolfe is particularly
excited about VoIP, the 11 new international sites, and MySpace News.
Several e-commerce deals - including a likely partnership with eBay or
Amazon - are in the works, as is a MySpace Sports site and MySpace
Fashion. DeWolfe and executives at Fox Interactive Media, which
oversees more than 20 News Corp. Internet businesses, are also
upgrading MySpace's photo- and video-storage capabilities to compete
with the likes of YouTube and Yahoo's Flickr. "Chris and Tom are
adamant about trying to wage war on a feature basis rather than by
blocking access (to other sites)," says Michael Barrett, FIM's chief
revenue officer, who joined News Corp. from AOL in June.
Wandering
past warrens of tech developers, 140 of them, DeWolfe explains that a
quarter of these folks are working on new features for the site. "We're
hiring as many people as we can as fast as we can," he says. MySpace
needs the upgrade. The site crashed for half a day in late July. Page
loads have slowed dramatically, and the site, say tech bloggers,
suffers from inadequate hardware and junky code. DeWolfe gets prickly
about such criticism. "You could argue that MySpace pushes out features
too quickly," he says, "but we also create more features than anybody
else on the Internet."
Under pressure to deliver profits - the
business brought in just under $200 million in revenues this year and
lost money after acquisition-related costs - the entrepreneurs are
building MySpace's ad sales force. They're also collaborating with FIM
executives to raise ad rates (an ad on MySpace's home page goes for
less than Yahoo's rate of around $600,000 a day) and attract more
national advertisers. MySpace already has a lot of them: Coke, Pepsi,
Procter & Gamble, plus the major automakers, mobile phone carriers,
and film distributors, who can't open a youth-targeted movie these days
without a MySpace page.
Given that MySpace is raw and bursting
with sexual material, the trick is make the site feel safe for
advertisers yet authentic for users. P&G, for instance, built a
page for a new version of Crest toothpaste titled "Miss Irresistible."
While the page has accumulated 38,267 "friends" and more than three
million page views, a MySpace monitor constantly scans the page and
removes raunchy "friends." Advertisers such as Honda, Unilever, and
Wendy's also have posted profile pages, which sell for $100,000 and up.
Two Pepsi brands, Sierra Mist and Aquafina, sponsor MySpace Comedy and
MySpace Film, respectively.
There are some lines DeWolfe vows
never to cross. Would MySpace do pop-up ads or charge bands to promote
their music? "Not as long as I'm here," he says. Levinsohn, too,
appreciates that users rule on MySpace. "If we shoved professionally
produced content onto MySpace, we'd be going against its charter and
against everything we believe about where the Internet is going." But
Murdoch and his fellow authority figures clearly want to use MySpace as
a distribution arm. In mid-August the company announced plans to sell
Fox TV shows and movies on MySpace, and Murdoch says he's been
approached by other networks. "Whether it's a CSI or Law & Order or
Desperate Housewives, we'll welcome the content." DeWolfe says he's
fine with the plan - though he wants to find a way for advertisers to
pay for the downloads.
What, exactly, is MySpace turning into?
DeWolfe says he sees it as a "lifestyle brand." But a brand has to
stand for something. And with all the growth and evolution of the site,
it's hard to fathom what that lifestyle even is. No question, the
MySpace user base is changing. Some 87% of users today are 18 or older;
52% are 35 or older, according to comScore. Might MySpace become too
big and broad and successful to be cool? One MySpace observer, Martin
Sorrell, who heads ad giant WPP, believes it could: "MySpace could be
like a fashion brand. The more successful you get, the more common you
become." DeWolfe disagrees: "We're not deciding what's cool. Our users
are," he says. "MySpace is all about letting people be what they want
to be."
So you have to wonder. News Corp. employees - is that
what Anderson and DeWolfe really want to be? Their contracts expire in
October 2007. They won't talk about their plans, but friends say that
the guys really don't know what they'll decide a year from now. As
Chernin puts it, "It will become apparent whether it's meant to be. I
mean that in a mutual sense. Their lives have changed. They need to
find their lives exciting and engaging." At this moment at least,
Anderson says he's excited enough: "I'd like to do this as long as it's
fun, and that could be a long, long time." DeWolfe is more cautious.
"It's pretty simple," he says. "As long as we both enjoy walking in the
door each morning and we maintain a certain autonomy and we control the
direction of the site ..." He stops there. He'll stay at MySpace if he
gets all that? Not so fast. "Just say we're happy working here."
Provided by the MusicDish Network. Copyright © MusicDish LLC 2006 - Republished with Permission
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