• by Erik Sass , Staff Writer @eriksass1, April 4, 2011

Anything new and intellectually engaging, which also carries potential for great profit, is naturally going to breed both excitement and anxiety: On one hand, people hope to strike it rich by dint of hard work and good luck, but on the other hand, there's always the fear of missing out, or even that nagging sense that the whole thing could somehow go bust. 

This tension - which was definitely in the air at OMMA Global in San Francisco from Feb. 28-March 1 - is actually good for social media as a whole: All that nervous energy means a lot of smart people are incredibly focused on making new technologies profitable, as they undoubtedly will be someday. But a quick survey of the social media landscape also leaves no question this emerging discipline is still in its infancy, with plenty of consolidations, shakeouts and - yes - failures to come. 

Anyone who doubts the volatility of social media just needs to look at the rise and fall of MySpace:  Purchased by News Corp. back in July 2005 for $580 million, MySpace lost $150 million in fiscal 2006, $193 million in 2007, followed by one profitable year (to the tune of $42 million) in 2008, another loss of $212 million in 2009, and yet another loss of $575 million in 2010. After a bizarre rebranding as "My_____," News Corp. is now planning to sell the loss leader at a considerable, well, loss.

It's easy enough to recite the history of a deal gone wrong, and issue judgments in retrospect. But it may be more instructive to recall the mood of "irrational exuberance" surrounding the deal in the first place - the breathless reporting, the envious spectating, the portentous predicting ... all of which turned out to be wrong.  A year after the purchase, Fortune boldly stated that "News Corp.'s purchase of MySpace is looking like that rarest of rarities in the media world - a much-ballyhooed acquisition where it turns out that the buyer underpaid." Fortune quoted News Corp.'s then second-in-command Peter Chernin exulting, "It looks like the best acquisition we've made in a long, long time. MySpace is the single biggest growth opportunity this company has." And at the time there seemed to be plenty of evidence to support this analysis: "MySpace has simply exploded since the deal was done ... Measured in terms of page views, MySpace has become the second-most popular site on the Internet - behind Yahoo, but ahead of msn, AOL and Google."

Of course, this ranking from 2006 now evokes nostalgia rivaling Proust: "Yahoo was the top dog?" "AOL was still a force to be reckoned with?"  "And where was Facebook? Things were so simple then!" But of all the changes in the last five years, the decline of MySpace has been perhaps the most spectacular - and it now offers a cautionary example about the transience of social media. If the MySpace saga proves anything, it shows that massive growth rates and high penetration don't necessarily translate into durability, either in the sense of long-term engagement or commercial viability. Back in March 2006, CNN noted that MySpace "has 66 million members, and about 250,000 new ones sign up each day. That's a mind-boggling growth trajectory for an Internet site that was launched less than three years ago." And indeed it was. But there were storm clouds on the horizon. The same Fortune column mentioned an up-and-coming site, popular with college students, which, however, couldn't hold a candle to MySpace: "Facebook is a huge phenomenon ... but it is not as big, by any measure, as MySpace. So if Facebook is worth even $1 billion, MySpace has to be valued at three or four times as much."

In retrospect, the trajectories predicted for MySpace (and its new competitor) were obviously wrong - despite seemingly incontrovertible evidence including its size, momentum, and a vote of confidence to the tune of over half a billion dollars from one of the world's largest media corporations. Today Facebook and Twitter have all the same factors on their side ... but is the triumphal certainty regarding their future prospects really any better-informed?