When MySpace said last week that it was lopping off 30 percent of its staff, you could almost hear the air rushing out of the Web 2.0 bubble.

Granted, the Web 2.0 bubble may not be as spectacular as its dot-com counterpart of the late ’90s, but surprisingly big it has gotten to be, nonetheless.

In fact, MySpace is one of the big reasons it got so pumped up to begin with. Rupert Murdoch plunked down an astounding $580 million four years ago to buy what is, after all, a fairly simple social networking site. Of course, that price didn’t seem so inflated when Google later agreed to give the Beverly Hills-based MySpace $900 million over three years in an advertising partnership.

But, as it turns out, both were inflated prices, and both pumped more air into the hollow business model.

Lots of Web 2.0 companies, especially the advertising-dependent ones, face the same old problem as many of the dot-com companies of yore. It’s the same problem that newspapers on the Web face: Most just don’t make money. Even if they do, it may well fall short of the amount needed to justify their inflated prices.

Consider: Despite the fact that Facebook is reaming MySpace, it’s making no profit and some analysts wonder if it can. There’s a fair amount of informed opinion that YouTube will never make enough money to justify the astounding $1.6 billion that Google spent to buy it. And despite all the chirping about Twitter, it has no significant revenue.

Ironically, MySpace has done well, relatively speaking. One report figured that if it enjoyed about a 20 percent profit margin on its $900 million or so in revenues last year, that means it earned something approaching $200 million.

Problem is, the future doesn’t look so great. Most of MySpace’s good numbers were buoyed by the Google deal. And Google has indicated that if it renegotiates the soon-to-expire partnership, it will be for far less money. Given that, and the fact that the ad situation is still brutal for Web companies, some believe MySpace could lose $100 million next year.

MySpace’s prospects are further dimmed because it has become less fashionable than Facebook, which in turn is losing the buzz factor to Twitter.

I can’t attest to the usefulness of MySpace because I’ve never used it personally (I figure I’ve got plenty of space to worry about without it). But colleagues and friends say they generally prefer Facebook because it has more and better features. In other words, Facebook is winning the popularity contest, and on the Web, that’s just about everything. Well, everything except profits.

So the bosses at News Corp. replaced the bosses at MySpace a couple of months ago. And last week, they announced the 30 percent cut in staff.

Those are not the kinds of judicious moves made to correct an errant course. Those are the kinds of panicked moves made when the top brass has seen the light.

Unless the new bosses can turn it around, MySpace may join AOL and Pets.com in the pantheon of Internet companies that had a life trajectory that looked like a Roman candle. And you’ve got to wonder how many other profit-free Web 2.0 companies will have that kind of fate.

Who knows? We may look back on that 30 percent cut and say that was when the air started whooshing out of the 2.0 bubble.

Charles Crumpley is editor of the Business

Journal. He can be reached at

[email protected].