Successful Business Leadership

This article compiles excerpts from different interviews with Tom Anderson and Chris DeWolfe, founders of MySpace.com, from Fortune magazine (9/4/2006), Forbes magazine (1/4/2006), and Spiegel magazine (1/17/2007). It thus describes a more complete view of how they started up the business.

Chris DeWolfe - I grew up in Portland, Ore., the younger son of two teachers. I bucked the family tradition by studying business at the University of Washington and then going to USC’s Marshall School of Business. Everyone said, ‘Have a five-year plan.’ I didn’t have a five-year plan or any plan. Business school was my opportunity to think for two years. At USC, I got really hooked on the Internet. In 1997, for a class called “The Impact of Technology on Media and Entertainment” I wrote a business plan for a community website that I called Sitegeist. I got an A-.

Anderson: I had a temporary job in a product testing company right after college. I only planned to be there for 3 weeks. I wanted to earn some money and then do some traveling. I met Chris, who was a manager there, and he moved me into a position right away that I really didn’t deserve. We started our first company nine months later. So I went from not working or doing little side jobs here and there to helping to run a company and own a part of it. I don’t think that a normal business guy would have given me this kind of chance.

While Xdrive ended up in bankruptcy (a casualty of the dot-com boom), the pair’s second venture, an Internet marketing firm called Response Base, took off: Within a year they sold it to an outfit called eUniverse for several million dollars and joined the company. Around this time, in late 2002, Tom decided that social networking should be their next big bet. “I had looked at dating sites and niche communities like BlackPlanet, AsianAvenue, and MiGente, as well as Friendster,” he says, “and I thought, ‘They’re thinking way too small.’ ”

DeWolfe: (MySpace) began as a community of creative people we knew in Los Angeles. Tom designed the site originally to cater to creative folks whether it was actors, artists or musicians. The community here for that is so vibrant. It wasn’t set up to appeal to tech geeks somewhere. It was set up for everyday people to express themselves creatively.

MySpace launched in 2003, with Anderson and DeWolfe inviting local bands and club owners to post pages and allowing other users to become their “friends.” DeWolfe loved those early days when he and Tom had time to go to the Viper Room and other clubs to check out new music every week: “It was pretty much a great way to work.” The bands turned out to be their best marketing tool. “All these creative people became ambassadors for MySpace by using us as their de facto promotional platform,” DeWolfe says, adding, “People like to talk about music, so the bands set up a natural environment to communicate.” (They didn’t know what to name the site until one friend reminded DeWolfe that he had, a year earlier, bought the URL myspace.com, thinking that he might start a web-hosting company.)

Hating the idea of any rules, Anderson and DeWolfe insisted on building an “open” site. Any stranger could peruse any profile, join the community, and post pretty much anything he or she pleased. That made raising money - at least at first - tough. “We’d get calls from investor types who wanted to meet us,” recalls Anderson. “They would say, ‘Your site isn’t professional. Why do you let users control the pages? They’re so ugly!’ ” DeWolfe says that just about everyone, including key executives at eUniverse, told them, “You can’t make money from user-generated content.”

Anderson: Actually, things did go remarkably easy for us. I can’t say that we struggled for a long time; we only struggled for about a month. When we were about a month into it, I remember thinking, “This may not work out.” Just one day, in particular, we saw this huge spike because of people telling each other. It just went crazy from there. We didn’t have this big, long struggle behind it. We put it up, and it got popular very quickly.

DeWolfe: One of the major reasons it worked so well is that we had a very experienced management team. We’ve worked together for the last seven to eight years. With respect to timing, when we launched the site, social networking began to take off, and the advertising revenue stream came roaring back. Two of the most interesting points were that we had no content costs and no customer acquisition costs. We had to make sure we had enough money to cover engineering and bandwidth costs, and we were confident that we understood the advertising business.

Then the founders got lucky. In February 2004, eUniverse (MySpace’s owner) recruited a new CEO, Richard Rosenblatt, who embraced social networking. “I told them, ‘I think this is where the future is going,” recalls Rosenblatt. “I allowed them to hire tech people and invest in additional servers. eUniverse was losing $4 million a quarter, and even though they had no revenue, I pulled money from our profitable businesses to support MySpace because I thought Chris and Tom were the most innovative marketers I’d ever met.”

Anderson: We didn’t do traditional marketing, but we did try to find photographers and creative people because we thought that would make the site more interesting. In the beginning, it was all Los Angeles–actors, photographers and musicians. That made for an interesting community, and brought in a lot of people. A lot of the early growth, however, had to do with the features and what our competitors were not allowing people to do.

DeWolfe: It was really key to create a set of functions that were compelling to our users and an efficient way to use them. Users socialize to figure out what they’re going to do on the weekend. They use MySpace to discover new music and post events. Musicians upload their music. People use it for entertainment purposes or to sell goods in the classified area. MySpace makes what they do in the offline world a) more efficient or b) more interesting. If you have ten friends, and nine are on MySpace and you’re not, you feel pretty left out. People end up joining sooner rather than later. The bigger the network gets, the faster it grows. We are now registering 160,000 people per day with no marketing.

MySpace just kept signing people up. At the same time, rival Friendster, which was once the hottest social-networking site, was stumbling badly, giving Anderson and DeWolfe a lucky break and a roadmap for what not to do. “We grew so fast and could never keep up,” admits Friendster president Kent Lindstrom. “Our page-load times were 20 to 30 seconds when MySpace’s were two or three seconds.” Secondly, Friendster management sanitized its site - much to Anderson’s delight. “They had no room for fakesters,” Anderson says. “If a dog or a city or an idea had a page, they would delete it. Could anything better have happened to us? People said, ‘I’m going to go to MySpace because I can do what I want there.’ ”

DeWolfe: They said that we were trying to do too much–music, instant messaging, blogs, etc.–and that we should just focus on one of those. That was the antithesis of what we aimed to do. Most of the sites that did that became boring after a while.

With that said, once you chose your product road map, then it becomes very important to focus on the top three to four initiatives and get those things done. Others try to do too many things at one given time. Our overall strategy was to build the next-generation portal that would be extremely sticky and layer those features in and around a social network. At any one time, we focus our developers on the top three to four initiatives and don’t get distracted with what others tell us we ought to do.

Successful startups “tend to have one person who is the soul of the business and inherently understands the users,” says Geoff Yang of Redpoint Ventures, who invested $15 million in MySpace early last year. “The other is the smart businessperson who has a compelling vision.” Anderson, then, is the “soul.” Typically wearing a trucker hat and flannel shirt (even on 90-degree L.A. days), he has an unvarnished, forthright manner that makes him seem almost childlike. He spends a lot of days toiling with the techies at MySpace to put out fires or add new features to the site, though lately he’s been getting pulled into meetings about partnerships and ad ideas. He sees his role as the “guardian” of the user.

You’ve been growing at breakneck speed. How did you manage to stay on top of your business?

DeWolfe: I’ve run businesses before. The other people on my team have worked in senior positions in other businesses. Your partners are the most important things. If you don’t have good partners, it can’t work. Some of our competition had extremely high turnover. It wrecks the continuity of running the business. You need to have similar sensibilities and people you trust to fill in your weaknesses with strengths that they have. That is underrated.

Another trap that people fall into, when you start to grow and there is a little bit of success, is that people get on the soapbox, like pundits and venture capitalists, who tell you how to run your business. It’s important to be very disciplined in terms of not listening to them. We were resolute to do what our users wanted. Having discipline and saying no is why we ended up being successful.

Anderson: In a way, it’s our lack of experience that helps–definitely for me. The thing I like about Chris is that he’s not like all the other people I’ve met in business. He’s able to cut to the chase right away. We don’t waste time on things. We didn’t sit down and write up this big plan and spreadsheets and try to force that imagined plan. We’ve been quick and nimble on our feet. I was working from common sense. Even though Chris does have that background, he’s never been pushing me to that mold, and he doesn’t follow it himself.

So we are not doing what everyone else is doing. When we were getting popular, people were saying, “Why aren’t you doing this or that?” I thought they were ridiculous, and they thought I was ridiculous.

Tom Anderson und Chris DeWolfe founded MySpace three and a half years ago in Santa Monica, California. Twenty four months later they sold the company for $580 million to media mogul Rupert Murdoch. Both men stayed on with the company as managers. DeWolfe, 41, handles the business side and Anderson, 31, is in charge of the “community.”

Anderson: What’s culturally significant about MySpace is that it has become so pervasive that people of all ages are now using it. Even people who didn’t grow up with it are getting used to it. People just get sucked in. A 35-year old person doesn’t find it strange anymore to be on MySpace. Just two years ago, we would have had no chance attracting that person.

DeWolfe: It’s like a platform to quickly show the whole world who you are. That didn’t exist before. It’s like snapshot, not just your picture, but everything you’re interested in — the look of your site, the sound file in the background. You get a visual and acoustic feeling of what a person is like by looking at it. This generation wants to be more expressive. It’s probably a renaissance in wanting to be creative. It’s pretty hard to show creativity in other ways, but it’s easy on MySpace.

When News Corp. came knocking in June of 2005, Anderson and DeWolfe were torn. They and the board of their parent company, which had been renamed Intermix Media, needed capital to keep up with the site’s torrid growth. Having lived through the dot-com bust, the money they’d make was no joke either. But the founders were wary about submerging their “anti-authority” site to, well, authority. DeWolfe told Ross Levinsohn, who heads News Corp.’s Fox Interactive Media unit, that he worried about “losing the brand, the personality, the culture.” And losing it to vast, conservative News Corp., at that! “They weren’t too keen on the deal,” admits Murdoch. “They could get more money later, if they waited to sell. And they had reluctance about being corporatized.” A meeting in Murdoch’s office on the Fox lot - at which Murdoch vowed, “We’re not going to tell you how to run the site” - convinced DeWolfe it could work.

The upside, of course, is the sugar-daddy factor: that deep-pocketed parent to back your best ideas. Of the 20 new products in development, DeWolfe is particularly excited about VoIP, the 11 new international sites, and MySpace News. Several e-commerce deals - including a likely partnership with eBay or Amazon - are in the works, as is a MySpace Sports site and MySpace Fashion. DeWolfe and executives at Fox Interactive Media, which oversees more than 20 News Corp. Internet businesses, are also upgrading MySpace’s photo- and video-storage capabilities to compete with the likes of YouTube and Yahoo’s Flickr. “Chris and Tom are adamant about trying to wage war on a feature basis rather than by blocking access (to other sites),” says Michael Barrett, FIM’s chief revenue officer.

Under pressure to deliver profits - the business brought in just under $200 million in revenues this year and lost money after acquisition-related costs - the entrepreneurs are building MySpace’s ad sales force. They’re also collaborating with FIM executives to raise ad rates (an ad on MySpace’s home page goes for less than Yahoo’s rate of around $600,000 a day) and attract more national advertisers. MySpace already has a lot of them: Coke, Pepsi, Procter & Gamble, plus the major automakers, mobile phone carriers, and film distributors, who can’t open a youth-targeted movie these days without a MySpace page.

What, exactly, is MySpace turning into? DeWolfe says he sees it as a “lifestyle brand.” But a brand has to stand for something. And with all the growth and evolution of the site, it’s hard to fathom what that lifestyle even is. No question, the MySpace user base is changing. Some 87% of users today are 18 or older; 52% are 35 or older. Might MySpace become too big and broad and successful to be cool? One MySpace observer, Martin Sorrell, who heads ad giant WPP, believes it could: “MySpace could be like a fashion brand. The more successful you get, the more common you become.” DeWolfe disagrees: “We’re not deciding what’s cool. Our users are,” he says. “MySpace is all about letting people be what they want to be.”

As of September 7, 2007, there are over 200 million accounts. What are the key business management and leadership lessons from the start-up of MySpace?