MySpace to Businesses: Kiss MyAds

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What a dire time to launch a new ad platform aimed at small- and medium-size businesses! But that's just what MySpace is doing today, with a roll-your-own ad service called MyAds.

Why now? Last week, the Big Fear gripped Silicon Valley big time. The always-optimistic entrepreneurs who thrive out here came down with a major case of the Pessimism Flu. The contagion was traced to a special meeting called by Sequoia Capital — the blue-chip venture firm — whose brains and money are behind just about any start-up of consequence. The message the VCs gave their young start-ups? Get profitable now or die.

That's the harsh new reality for most Web 2.0 and other tech start-ups who've been chasing audiences without regard to the immediate bottom line. Gone is the old mantra — get to a million users, then worry about how you'll monetize. We're back to a nuclear winter, a season that tends to arrive in the bread basket of innovation every four years or so. But this time, the pundits say, expect a long, cold winter that could last five years.

This is the kind of climate that favors established leaders, who have got not only the capital to survive the long haul, but also real, revenue-generating business models in place. Look for a blood bath as big tech companies try to consolidate their positions in the coming months. Apple is rumored to be launching an $800 laptop, moving into a lower price range that makes it even more competitive with PC makers such as HP and Dell. In online retail, Amazon would love to put a stake in the heart of eBay this holiday season.

And MySpace and Facebook, the Coke and Pepsi of the social-networking world, are going after each other tooth and nail. That's why MySpace unveiled an innovative music service a few weeks ago that gives users free access to a library of millions of songs. It's also why it's launching its sweeping new advertising play today.

The crux of the idea is similar to Google AdWords, which gave anyone the ability to buy keywords and serve ads to users searching for stuff. (AdWords accounted for the lion's share of Google's $16.4 billion in revenue last year.) Where AdWords is targeted at what users are searching for, MyAds is targeted at the users themselves.

Anyone can buy ads by going to the MyAds site and signing up. A relatively easy tool allows you to create a banner ad — you can upload your own image, graphic or corporate logo, and type your message directly into it. MySpace then allows you to "HyperTarget" (MySpace's term) your ad at a market based on the many ways the social network's 76 million active users define themselves. Age, gender, zip code, hobbies, musical preference, even the kinds of video games people like are among the data MySpace captures from users and shares with advertisers. Like Google, rates vary depending on the target market; MyAd advertisers only pay when a user clicks on their ad, with prices starting at 25 cents per click-through. A suite of analytical tools helps advertisers determine how well their ads are working. You can change your ad anytime, on the fly.

"MyAds makes it viable for the dry cleaner in Beverly Hills to advertise to married women over the age of 25 — and include a coupon within a 5-mile radius of 90210," Chris DeWolfe, co-founder and CEO of MySpace, told me the other day. "The ads become extremely efficient, much more efficient than local TV and radio."

DeWolfe, as well as MySpace press materials, cited the example of Dan Davis, a Chicago-area roofer who broadcast an ad called "Damaged Roof?" in the aftermath of a hailstorm at the end of the summer. An outlay of $100 got him a $30,000 job, within eight days.

DeWolfe said MySpace has been quietly beta-testing the service for the past few months. "We already have over 3,300 advertisers," he said. "So we believe this could be a significant program in our revenue mix moving forward." He claimed that click-through rates on MyAds increased "50% to 300% in different categories, depending on what the HyperTarget was and what the product was."

I can't decide whether this will be a roaring success or a horrible failure. The market MySpace is targeting here — small-to-medium-size businesses — is expected to be the hardest hit by the financial crisis in the coming months and years. They'll have far fewer dollars to spend on marketing and advertising. MyAds is an extremely cheap way to experiment. We'll check back with Davis the Roofer in six months and see how it's going for him.