By Michael Jones, contributor
FORTUNE — Over the last two years, I served as co-president and then CEO of Myspace. I am often asked, “Why did you take that job?” It is a fair question. As a former startup entrepreneur, the Myspace role seemed out of character. But for me, Myspace was actually a perfect fit for the following reasons:
A year ago, we executed one of the most significant relaunches of a historical Internet brand. We repositioned Myspace (NWS) as a social entertainment destination and introduced an entirely new technology platform, new products and refreshed content. However, the new Myspace didn’t gain as much traction with consumers as we had hoped.
In August, after Specific Media acquired Myspace, I stepped down as CEO. Since then, I’ve been able to reflect upon my experience there. Although there will be many stories about Myspace left untold, I learned some important lessons that I’d like to share with fellow turnaround CEOs, anyone charged with running an Internet business — and the passionate dreamers.
So, what happened?
While it’s true that Myspace faced a variety of organizational challenges that impacted the speed at which we could transform the company, in the end, it was the fundamentals that held us back. And, many other legacy Internet businesses are grappling with the same kinds of problems. Here are some of the top lessons we learned:
Long Brand Memories. The lesson here is for legacy brands: there is often more reward for creating a new brand than investing in an existing brand. For example, Google (GOOG) launched Plus, not Buzz or Orkut. AOL (AOL) focused on Patch, not AOL Local. Yet in our case, we chose to keep the Myspace brand. This was a mistake. We found that regardless of how much we improved the product or the marketing message –– consumers’ memories about the brand were too strong to allow them to view Myspace with fresh eyes and an open mind. We could not escape their images of animated GIFs.
It could be argued that with more time and more marketing dollars, we might have been able to change users’ perceptions of Myspace. However, massive brand campaigns haven’t worked to turn around other big Internet companies. Yahoo’s (YHOO) $100 million “It’s Y!ou” ad campaign is one such example. I don’t think a large consumer campaign would have significantly changed the outcome for Myspace. In the end, I believe Myspace would have had a better chance for success if we had relaunched it as an entirely new brand.
Utility Outlasts Entertainment. Myspace Music has always had a strong brand affiliation with entertainment. Its popular Secret Shows franchise — a series of free concerts with top artists exclusively for Myspace users — helped to create an incredible bridge between online and offline experiences and established a certain brand tone in consumers’ minds. With the relaunch, we sought to capture the essence of Myspace Music and expand it to other entertainment categories on the site.
However, where Myspace came up short was on utility — that is, we didn’t have a product that compelled users to come to the site every day, something that had true-long lasting utility for consumers. At its inception, Facebook required users’ to register with their real names. This helped it develop a real world social graph that was a true utility for users and thus. In other words, it has long-lasting value. Whereas Myspace’s entertainment value, with its optional anonymity and its entertainment -‐ focused interest graph, never achieved the same level of utility for consumers.
Yahoo and Google are also a good example of this. Yahoo is a content oriented, entertainment brand with some utility via email, photos, etc. Compare that to Google, which is near‐pure utility to the consumer. The lesson here is that the market and consumers are predisposed to value utility over entertainment because consumers create longer lasting relationships with utilities that make their daily lives easier.
Perceived momentum = perceived value. As of August 2010, Myspace was interacting with over 100 million users a month, generating billions of page views and streaming hundreds of millions of songs. Yet, despite these incredible metrics, the market value for Myspace was far below the value placed on many other smaller, yet similar, businesses.
The lesson here is that the market determines value based on the perception of a company’s momentum, whether it’s a small businesses or a large legacy enterprise. For startups, I would go a step further and say that momentum is everything. When I advise start‐ups, I recommend they focus on showing either user traction or revenue traction — but typically it is hard to do both. In fact, one of the worst places a startup can end up is having modest momentum in both areas but not being able to show clear, strong growth momentum.
Change within large organizations must be centered around drastic actions. Large companies with practices built to support large organizations are difficult to transform quickly without radical personnel changes. At Myspace, we instituted several shifts in personnel and organizational structure. We found that while each change brought greater efficiencies in decision-making and product development, they weren’t radical enough to accomplish the enormous task in front of us.
Do not underestimate how deeply muscle memory is embedded in the company’s processes and staff — so much so that even significant staff changes often do not result in the desired increase in efficiency. It was only through major change, a full disruption to the system, that we were able to galvanize the organization around new goals and begin seeing increased efficiencies. Slow behavioral change creates slow process change. Large behavioral change creates a drastic process change.
Single front door = single point of failure. Many large Internet businesses, such as Myspace and Yahoo, have a single “brand” front door, in that users have one point of entry into the site. Behind the door, users will find multiple product lines. Unfortunately, a single front door means there is a single point of failure in consumers’ minds — even when the product lines behind it are robust.
After the Myspace relaunch, we were able to stabilize many of the primary metrics and start to show growth in certain areas of the product and user behavior. We were beginning to see a clear split in old vs. new user behavior. However, because we had a single front door, we couldn’t easily demonstrate clearly defined momentum that was applicable across the entire site.
Netflix (NFLX) faces a similar challenge. Its legacy DVD business was weighing down the perceived momentum of the streaming business and the company overall. So Netflix tried to differentiate the two business lines and create separate websites for each. They’ve since reversed that decision, but it the long run, separate website may end up being the right answer.
A few parting thoughts for future turn-around investors, boards and executives:
The Internet is still an adolescent industry. The ability to show new life in more mature businesses is crucial to long-term success. This is a problem we all must embrace and solve for. And when we do, I believe we will find that building new businesses on top of older businesses of scale is the best formula to rapid growth and audience renewal.
Michael Jones is an Internet executive, a long-‐time entrepreneur, investor and advisor located in Los Angeles. Most recently, Mike served as the CEO of Myspace. In this role, Mike oversaw global business strategy and operations for Myspace, Myspace Music, and Myspace Mobile. During his tenure, he was responsible for the relaunch of Myspace, one of the most high-‐profile turn-‐around challenges in the industry. This included stabilizing a historically negative traffic and user trend, reducing the operational cost of the business by nearly 90 percent and pivoting the product from its legacy as a social network to a social entertainment destination. A serial Internet entrepreneur, Mike has founded and sold numerous businesses, including agency PBJ Digital, application platform Userplane, which he led from startup to its acquisition by AOL, Tsavo Media and Myspace. Mike continues to be actively involved with early-‐stage start-‐ups as an investor, advisor and board member.