It is an irony that the news about MySpace should come the day after Facebook raised $500 million -- most of it from Goldman Sachs Group (GS) -- in a deal that values the Internet company at $50 billion. Less than four years ago, MySpace was the clear leader in the social network business.
News Corp bought MySpace in 2005 for $580 million. The buyout was hailed as a brilliant move by News Corp CEO Rupert Murdoch. It allowed him to get a huge foothold in the Internet. Shortly after the transaction, MySpace got a $900 million search advertising deal with Google (GOOG). Wall Street noted that MySpace had already paid for itself.
Why did Facebook's popularity soar while MySpace's fell? Some experts say that Facebook is preferred by a younger audience that is more active on the Internet. Others say that Facebook is a better-designed site that is easier for "members" to use. Whatever the reason, the demise of MySpace shows that there are no prizes for second place in the social networking economy.