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Google and MySpace make sweet sweet AdSense love

Google and MySpace have inked a multi-year deal worth about $900 million. This is widely being seen as a win-win situation as MySpace wasn't optimally monetizing their traffic and Google essentially edged Yahoo and MSN out from the last "unclaimed" internet giant.

According to Red Herring:

"Google on Monday agreed to pay at least $900 million to become the exclusive provider of search technology and text-based advertising services on News Corp.’s popular social networking site MySpace.com.

Under terms of Google’s multiyear agreement, the Silicon Valley giant also will power search functions on a majority of Fox Interactive Media properties, which include video game site IGN.com and Rotten Tomatoes, a movie review publisher. Google will also provide text-based advertising and keyword targeted ads through its AdSense program."

To give you an indicator of how potent this deal is in the eyes of analysts, consider that eMarketer estimates:

"... that US social network ad spending will rise to nearly $1.9 billion in 2010, from $280 million in 2006. With the Google/MySpace deal, ad revenues at MySpace may top $1 billion as soon as 2010."

Yahoo and MSN aren't looking too rosy in the media. MarketWatch stated:

"While it was viewed as a big loser in the deal, shares of Yahoo Inc. were up 1.3% Tuesday to $27.44."

eWeek added about Microsoft in the title of an article:

"Google + MySpace = Nail in the Microsoft Search Coffin?"

However, this deal is not without risks. The Guardian Unlimited noted:

"However, with the Google/MySpace deal there are also some catches. MySpace is on track, according to analysts, to bring in $200m this year in ad revenues. Under the Google deal a crisp $500m might be the minimum to be expected at the end of next year.

But the whole deal is predicated on Fox Interactive Media maintaining traffic levels across its portfolio of sites, including MySpace. And while MySpace certainly has oodles of traffic, it also has an audience that is particularly resilient to online ads.

According to Jupiter Research the MySpace site rates are about 10 cents per thousand ads served - compared to the $3 or $4 online industry average."

Ick. A 10 cent CPM is downright crappy! CIO Magazine puts a positive spin on it by saying:

"In June, [News Corps' President] said MySpace’s revenue was reaching 'large numbers' and that it had been doubling every four months or so this fiscal year. 'Revenue is growing incredibly quickly, and we think we’ve just scratched the surface of how to monetize this [site],' he said then."

But again, a 10 cent CPM is HORRIBLE. It's not going to be enough for MySpace to grow its membership and increase its traffic. Google and MySpace will have to find some way of reaching the users and making the ads work. We're excited to see where this business relationship goes.