Friday, July 1, 2011

Murdoch was Bubble Boy with Myspace purchase

If ever there were an example of what happens in a bubble economy it is News Corp.’s purchase of Myspace for $580 million in 2005.

Now the social network that was a media sweetheart has been sold for $35 million to Specific Media, an advertising network. In other words, it lost 94% of its market value in six years. Myspace did earn back its purchase price early on with a lucrative ad contract with Google, but it has never lived up to its expectations.

The reality check of Myspace comes at a time when a market value of $100 billion for Facebook is being discussed by supposedly sane people -- that is about 170 times the price Murdoch paid for Myspace.

And although Facebook shows a lot of promise, remember that the market value being discussed is 50 times revenue. I remember when a really good newspaper property might sell for two or three times revenue. That was before Bubble Boy.

Let us not forget that Groupon, the daily deals juggernaut, is planning to seek $750 million in its IPO. Groupon seems like a risky bet. Competitors are flooding the daily deals sector and many of the businesses that have used this promotional service are very critical of it.

Maintaining a strategically dominant position will be very challenging for Groupon. Justifying a valuation of $750 million will be even harder.

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