Infrastructure Costs Nearly Killed MySpace
Was MySpace facing an infrastructure crisis prior to its acquisition by News Corp.? That’s the claim being made by former MySpace CEO Richard Rosenblatt, as summarized in a story at Advertising Age (link via Marketing Pilgrim).
Rosenblatt, who now heads domain advertising specialist Demand Media, was among the speakers at Paid Content’s EconSM conference, and discussed the valuation of social media properties. The conventional wisdom (at least via 20/20 hindsight) has been that Rupert Murdoch got a sweet deal in buying MySpace for $580 million, since he was able to sign a $900 million ad deal with Google a few months later. But Rosenblatt suggests MySpace may not have been bargaining from a position of strength:
“MySpace was in an interesting stage of its development (when News Corp. acquired it),” he said. “It had a different type of capital structure and we weren’t able to make the type of investments (necessary) for the infrastructure. Ultimately if we hadn’t sold to News Corp., MySpace wouldn’t be around today.”
Back in January we discussed an account of the growth of the MySpace infrastructure. While the site has faced constant data center challenges due to its rapid growth, the biggest budget buster was probably bandwidth, since MySpace has always swapped large amounts of video and image files, especially with YouTube and Photobucket.
Last year MySpace shifted much of its LA equipment from the Garland Building (where it was felled by a power outage) to Equinix, where it was better able to use peering relationships to manage its bandwidth relationships with other networks and social media services.
Peering allows two providers exchanging large volumes of traffic to save money by connecting directly, rather than routing traffic through their paid Internet connections. Peering does not provide access to the entire Internet, only the other provider’s customers. Peering is often free as long as the amount of traffic exchanged is not out of balance, providing substantial cost savings for bandiwdth for high-traffic sites and networks. The best way to peer is to find a facility like Equinix’s data centers, point where multiple networks run through the same data facility and can easily exchange traffic.
When one of Myspaces users puts a link to a video on youtube or picture album or slideshow on photobucket Myspace doesn’t pay for the transit costs of delivering the files. You appear to be implying they do but the reality is the users are linking back to youtube or some other third party from where the files are served. In many cases, the youtube or photobucket may not even be serving these files themselves as they use CDN to ensure their content gets delivered timely and in high quality. Regardless, this situation doesn’t cost myspace any more money for transit,infact one could argue it saves them money because youtube is basically hosting and serving the files for free. The Myspace users simply link to them. Where video does cost Myspace is when their users host it on the myspace infrastructure which taxes not only bandwidth but also hardware and probably costs them somewhere around $.02 – $.05 per video to deliver.