Update: Google nabs MySpace search deal

Google has won one of the most sought-after deals in the search engine market, becoming the exclusive provider of search functionality and search advertising to MySpace.com and other News Corp. Web sites.

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The exclusive deal calls for Google to provide general Web search, site search and vertical-type searches for MySpace.com and the majority of sites run by Fox Interactive Media, the News Corp. online division that entered into the deal with Google.

Google will begin integrating its search and advertising services into MySpace.com and the other Web sites in this year's fourth quarter. The deal gives Google a major new outlet for the ads it sells via its AdSense program, and it should help MySpace.com increase its advertising revenue, which is generally considered to be significantly below its potential.

As part of the deal, Google must make revenue-sharing payments totaling at least US$900 million to Fox Interactive Media between the beginning of 2007's first quarter and the end of 2010's second quarter, the companies said Monday in a joint statement. In turn, Fox Interactive Media must achieve various traffic and other goals.

The deal should provide MySpace with a higher level of revenue than it is currently getting from search advertising, said industry analyst Rob Enderle of Enderle Group. "MySpace hasn't been making as much money as they think they can, and Google's ability to generate revenue in this [search advertising] space has been impressive," Enderle said.

It remains to be seen how the deal will hold together, he said. "After a while, Google partners start feeling like they are doing the work and Google is getting too much money," he said.

This deal is the first of many projects Fox Interactive Media plans to enter into with Google in the coming years, the companies said.

Some other logical areas of collaboration for the companies would be video and instant messaging, said Allen Weiner, a Gartner Inc. analyst. A video-distribution deal like the one Google signed Monday with MTV Networks would be a good fit, he said. In the MTV deal, Google will distribute ad-supported content from MTV to targeted Website publishers. Meanwhile, Google could improve MySpace's subpar in-house IM service, Weiner said.

In June, Peter Chernin, News Corp.'s president and chief operating officer, had said the company was considering "auctioning off" MySpace.com's search business to a major search engine operator.

At the time, Chernin explained that too many users leave the social networking site to go to external search engines, mostly Google, and that every time that happens, MySpace.com loses an opportunity to generate ad revenue.

Until now, MySpace.com had used Yahoo Inc.'s search engine and carried sponsored search ads from Yahoo's network. It seems News Corp. had been trying to strike a broader, more profitable deal with a search engine provider than the one it had with Yahoo.

It's likely News Corp. was attracted to Google's ad-serving technology, which targets ads with more accuracy and flexibility than Yahoo's system, Weiner said. "Google provides such precise [search] keyword targeting that MySpace will likely get the maximum amount of revenue out of it," he said.

MySpace.com, launched in 2004, has become one of the world's most popular Web sites, with more than 73 million registered users. It is used mainly by teens and young adults to set up personal profiles, post photos, keep a journal and stay in touch with friends. News Corp., a global media conglomerate, last year paid more than half a billion dollars for it and other Web sites owned by Intermix Media Inc..

Although News Corp. doesn't disclose MySpace financial details, financial analysts generally agree, based on estimates, that the site's revenue should be much higher than it is, considering its enormous audience.

In June, Chernin 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.

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