The changing faces at Murdoch's MySpace

In 2005, Rupert Murdoch spent $580m om MySpace. Four years later, he hired AOL's Jonathan Miller to rescue it. He fired founder Chris de Wolfe and hired Owen van Natta from Facebook. Ten months on Van Natta is out too

Don't you feel just a pang of sympathy for MySpace? It has even become the butt of cruel jokes. Striking just the right note of pathos, Saturday Night Live called the social networking site the internet's "abandoned amusement park" in a recent skit. Where once it bestrode the world, it has been eclipsed by Facebook as a forum for communicating with one's friends, and has failed to capitalise on all that early buzz surrounding online music, a buzz that once catapulted the Arctic Monkeys to No 1 in the UK charts.

Now, while Facebook marches towards 400 million monthly users across the world, MySpace has barely one-quarter of that, and its members are spending much less time on the site, or falling away altogether.

Worst of all, a three-year advertising deal with Google, which pays to put ads alongside search queries made through MySpace, is set to expire this year. MySpace didn't generate the minimum traffic numbers it promised Google, so will end up with perhaps $100m less than the $900m minimum it expected three years ago – and it can hardly expect such a generous deal next time around. Other advertisers are shunning the site for rivals.

Rupert Murdoch, who bought the site for his News Corp media empire in 2005, for $580m, said earlier this month that MySpace is "not where we want it". In the past few months, it has laid off more than 30 per cent of its workforce, but as for new ideas that might give the site a new lease of life, answer comes there none.

You'd expect a fraught atmosphere at head office in these circumstances, but perhaps not as fraught as it clearly had become by this week, when News Corp's digital media boss, Jonathan Miller, the former head of AOL, swooped into MySpace HQ in Los Angeles to investigate rumours that senior executives were fighting, to examine new turnaround plans, and – at the end of a day of meetings – to fire the MySpace chief executive, Owen Van Natta, after just nine months in the job.

"This may be a surprising turn of events," Mr Miller conceded in an email to MySpace staff.

They will be reporting now to Jason Hirschhorn and Mike Jones, who had been Mr Van Natta's deputies, both of them executives with experience of starting their own companies. Mr Van Natta had been lured to MySpace after previously having been chief operating officer of Facebook, but tensions with his deputies and with Mr Miller had simmered, as various disagreements over the direction of the site mounted.

"MySpace just doesn't need this right now," said Debra Williamson, an analyst at eMarketer, a consulting firm that works with advertisers. "These are dire circumstances for MySpace and News Corp. Advertisers and ad agencies – the people spending money to support social networking sites – are devoting all their energy and time to other networks. If you have a movie to promote or a record album out, MySpace can still be relevant, but for mainstream advertisers it is all about Facebook and Twitter."

Wall Street is getting impatient. According to Doug Mitchelson, an analyst at Deutsche Bank, MySpace is on course to lose more than $100m this year. The company's earnings, before interest and tax, deteriorated $32m to a loss of $20m in the second quarter of News Corp's financial year.

"Cost management could not nearly keep pace with its revenue declines," Mr Mitchelson told clients after News Corp's results last week, both at search (lack of delivery to Google) and display (poor market, declining page views). With losses headed towards $110m this year, it might be time to ask whether this acquisition was a failure and the business should be sold. It is unclear that management can turn this business around sufficiently to drive it to profitability."

How did it go so wrong? Many in Silicon Valley theorise that the company lost its innovative zeal under corporate management after the takeover in 2005; others question whether Mr Murdoch's determination to emphasise entertainment content over social networking was part of its downfall.

Alternatively, perhaps Facebook was just a better idea.

"Too much of MySpace's content, including people's personal profiles, can be found online without logging in," says Debra Williamson. "Whereas on Facebook there is a real sense that you are joining a community. MySpace lost focus on what people are interested in, which is communicating and interacting with friends. Whereas Facebook focused laser-like on communication, MySpace made the decision to emphasise entertainment and content sharing, but while it is having some success with MySpace Music we have not seen anything else. Where is the TV? Where are the games?"

These will be key questions for the new co-presidents, not least for Mr Hirschhorn, who has been chief product officer under Mr Van Natta, and for Mr Miller, who is likely to have to take a more hands-on role, at least in the short term.

"Mike and Jason have shown true leadership in their operational and product guidance, respectively, and I have the utmost confidence in both of them to lead MySpace into its next chapter," Mr Miller said in a statement announcing the dramatic reshuffle. "Owen took on an incredible challenge in working to refocus and revitalise MySpace, and the business has shown very positive signs recently as a result of his dedicated work.

"However, in talking to Owen about his priorities both personally and professionally going forward, we both agreed that it was best for him to step down at this time. I want to thank Owen for all of his efforts."

MySpace rivals: Here comes Google

MySpace may not have noticeably advanced in the nine-month tenure of Owen Van Natta, but the world of social networking has certainly moved on – and threatens to do so at even greater warp speeds with the entry this week of Google.

In the United States, four out of five internet users visited a social networking site in December, according to comScore. The activity now accounts for 11 per cent of all time spent online, something that makes the collapse in time spent on MySpace all the more alarming for its owners.

Google is hoping to grab some of that internet time back from Facebook and Twitter with the launch of Google Buzz, which will allow users of its Gmail email accounts to quickly share status updates by turning their contacts book into a Facebook-style friends list.

Analysts give it a good chance of making a decent fist of social networking. Gmail is the third most popular web-based email in the world; it logged 176.5 million unique visitors in December.

Microsoft's Hotmail and Yahoo Mail were No 1 and No 2, with 369.2 million and 303.7 million visitors respectively.