iLike Deal Puts Facebook In Lose/Lose Situation

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As more details emerge about the MySpace-iLike acquisition, all sorts of interesting observations and questions pop up. A few thoughts:

The Facebook Angle

This is by far the most interesting angle to the deal. iLike is the most popular music application on Facebook, and is the de facto Facebook Music app. That company will shortly be owned by MySpace, Facebook’s primary competitor. That puts Facebook in a lose-lose situation. They can let iLike continue to dominate the music scene on Facebook and let MySpace own all that. Or they can ban iLike and lose all credibility with their platform – everyone would know iLike was banned because of the acquisition by MySpace. And it doesn’t have to be an outright ban. Facebook has plenty of subtle ways of trainwrecking an application they don’t like. Keep an eye on this.

Why didn’t Facebook just buy iLike? A matching or slightly better offer than the $20 million MySpace is paying would likely have gotten the deal done. And it may have saved Facebook from an embarrassing situation.

If I were MySpace, I’d focus on getting their free streaming music into the iLike Facebook application as soon as possible. Advertisers will love it.

This deal also shows what a top Facebook app is worth. Most of iLike’s activity comes through Facebook. They have 10 million monthly active users, and 31 million total Facebook installations (iLike has a total of over 50 million registered users). MySpace has valued that and the rest of iLike at $20 million, but has to factor in the possibility that Facebook will derail the application, subtly or overtly. If that risk wasn’t there, my guess is iLike would be worth 2-3x as much.

Why is MySpace and not MySpace Music buying iLike?

We’re hearing two reasons.The first is that MySpace Music, a joint venture with the music labels, isn’t going too well. The venture will lose at least $20 million this year on the back of massive royalty payments to the labels, and when the Google search deal ends next year the financial prospects of MySpace Music may get much, much worse. The last thing MySpace wants to do is put good money after bad and throw more assets into MySpace Music. Plus, the deal would likely have required notice to, if not the approval of, the label partners who own equity in the joint venture.

There’s another reason being talked about by our sources as well, though. iLike isn’t just about music and music recommendations. The platform they’ve built to facilitate artist-to-user publishing and user-to-user recommendations can be used for content beyond music, such as videos and games. Our guess is MySpace intends to integrate iLike’s technology into more than artist pages. So having the assets at MySpace makes sense.

MySpace Now Has Its Own Music Download Deals With Labels.

iLike launched its music download store last week. MySpace Music has streaming rights to music but not download sales rights. Today Amazon powers MySpace Music downloads. I’m sure MySpace is now considering (or already decided to) moving to a direct sales approach via iLike’s deals and software.

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