Last updated: August 8, 2006 5:41 am

Google in $900m ad deal with MySpace

MySpace, the fast-growing “social networking” site, has teamed up with search giant Google in a multi-year search and advertising deal.

It confirms the emergence of Rupert Murdoch’s internet operations as a significant new force on the web.

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The rapid growth of MySpace, which is adding more than 250,000 new users a day, has turned it into one of the most attractive allies for search engines, which are seeking new online audiences for their search-related advertising. The internet site was bought by News Corp last year for $580m (£304m) and expected to reach 100m registered users this week.

MySpace and a number of other News Corp sites will get a guaranteed $900m in shared revenue from Google by 2010 under the deal, which the companies said could be the start of a broader alliance.

“In one fell swoop we have paid off two-thirds of our internet investments,” said Peter Chernin, News Corp’s president and chief operating officer, who negotiated the deal. “We have gotten a 70 per cent premium on our MySpace investment and are now playing with house money.”

The deal – formulated during a meeting of top News Corp executives in California last week – will see Google power the search function on MySpace.com and the majority of Fox Interactive Media web sites. Google will also be the exclusive provider of keyword advertising for those sites and have a right of first refusal to handle display advertising sold through third parties on the network.

The announcement comes as rival US media group Viacom is considering a bid for Bebo, another social networking site, after its failure to defeat News Corp in the race for MySpace last year.

Google beat Microsoft in striking the MySpace deal. Last year, the two fought for a link with AOL, eventually won by Google after the search company agreed to invest $1bn in the business.

Google used guaranteed minimum payments early on to win over online partners to carry its advertising, a move that some insiders worried would risk bankrupting the company.

But those deals have paid off as keyword advertising boomed, leaving Google, which has a 60 per cent share of the global search market, with a network of third-party sites that generated $1bn in the most recent quarter, or 40 per cent of its revenues.

The rapid growth of social networking sites such as MySpace around the world and sites dedicated to user-generated content such as YouTube has threatened to tip the balance of power on the internet away from traditional portals and search engines. It is also changing the media business, and traditional media groups are trying to enter these new areas.

Mr Murdoch has been the most aggressive with about $1.5bn of internet acquisitions in the last year.

Users of these sites want to make and change the content they watch, get feedback and share with others. Advertisers are still trying to find a way to target this audience, amid concerns about suitability and copyright.

Eric Schmidt, chief executive officer of Google, said the company would be able automatically to screen user-generated content in order for ads to be targeted there too.

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