Yesterday Google (GOOG) was awarded an exclusive online advertising deal with News Corp (NWS) subsidiary MySpace.com. The agreement, valued at $900 million, runs through 2010.
The reason I think it is a win-win for both companies is fairly simple. MySpace has done an exceptional job attracting users (around 100 million and counting at last count) but thus far has not really focused on monetizing that traffic. By bringing in Google to provide search and online ads to the site, they get the best-in-class company to manage that aspect of the business for them. And given that Google has billions in cash, MySpace likely chose them (over the likes of Yahoo, MSN, Ask, and AOL) not only for their superior technology, but also because Google’s huge war chest allowed them to offer the most revenue share.
From Google’s perspective, it is also a smart deal. Sure, $900 million over three years is a lot of money to spend, but they have been raising additional capital for these types of investments ever since their IPO. Think of this very similarly to the $1 billion they shelled out to get their Google Pack software pre-installed on all new Dell systems.
With Google running away with the U.S. online ad market, the market is becoming more and more saturated. Keys sites like MySpace, that don’t have advertising partners yet, are few and far between, and are crucial partners if Google is going to continue to grow at the rates investors expect. The potential for international growth surely trounces that of the United States, but Google has had a tougher time dominating the online ad market overseas thus far, making continued U.S. dominance very important.
Google needs growth. MySpace needs to make some money. As a result, this deal seems like a perfect match to me.