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MySpace hits a snag with Google February 7, 2007

Posted by Brian Mulligan in allances, Internet, Merger.

I read this interesting article from the wall street journal titled, “MySpace’s Pact with Google Hits a Snag” early this morning about how MySpace is trying to team up with eBay to allow MySpace users to sell items on their homepages through EBay and their PayPal payment system. Google isn’t too cool with this third party decision since their 900 million dollar deal with MySpace from 2005 may become a potential roadblock.

Google has created it’s own new online selling database called Base with a payment system, similar to PayPal, named Checkout. Google has been stealing market share away from eBay in the past couple months and doesn’t feel that MySpace should work with a direct competitor if they are benefiting from the earlier Google – MySpace deal. Google and eBay have been viewed as partners in the past with eBay directly advertising on Google for product search, but Google is trying to gain market share by actually asking people selling products to advertise directly on Google. This will cut out eBay from the picture.

This article poses some interesting questions relations and structure between to companies that have come together for a joint-venture to benefit both parities. Google is paying 900 millions dollars to MySpace, owned by News Corp, to control ad space on their websites. Also, MySpace would have access to the Google’s search engine. The new deal has created many new synergies between the companies that have reduced costs and increased the traffic on both the websites. Also it have proved to be a great way for advertisers to use the web as a medium to reach potential customers.

Along with these great benefits, there comes some extra baggage and commitments that you have to adhere to. The more tight a relationship reduces uncertainty, but creates more connectivity and dependence between companies. This relates directly to our reading from last week concerning the ideas of transaction costs. Both companies reduced transaction costs. MySpace utilizes Google’s strong search engine and shares the revenue from the ads the Google controls on MySpace.

It posese just one question. Although this deal reduces transaction costs, a joint ventureship may shut you out of potentially more profitable ventures. Is it worth it?



1. Kira - February 7, 2007

Not being a MySpace user, I didn’t know about this new feature. It is easy to see why Google would not be happy about MySpace teaming up with a potential competitor especially after spending so much money. Is there anything Google really can do about MySpace’s decision to team with eBay? Did they have any form of a contract that mentioned a non-compete when they made the 900 million dollar deal?

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