In late 2002, DeWolfe and Anderson outlined the Internet landscape and recognized a “perfect storm.” Social Networking was becoming increasingly popular and there were niche players who controlled different aspects of the social networking landscape—Friendster (dating), Tribe (classifieds), and Facebook (social networking for college students). DeWolfe and Anderson realized that fragmentation within an industry eventually leads to consolidation. As a result, the decided to build a portal that would bring all the of the niche functions together and let users do whatever they do offline in a more product way: express themselves, send out invitations, blog, discover music, share photos, and play games.

With the dot com bubble having passed and the Internet becoming an increasingly more commonplace for interactions, DeWolfe and Anderson’s identification can be further examined through Porters Five Forces to understand the environment which presented the opportunity for Social Networking. Between 2002 and 2003 Social Networking was just beginning to gain traction among users, thus the threat of rivalry was relatively low. According to DeWolfe and Anderson, there were only three key rivals in the industry – Friendster, Tribe, and Facebook. Additionally, these rivals were also niche players, thus there was no one dominant player. MySpace looked to take advantage of this opportunity. Because MySpace was conceived during an era when the Internet was used every day, barriers to entry were low. The dot com era displayed the ease to create on the internet, but also the ease to disappear. Furthermore, threats from substitutes remained minimal during time. Traditional media outlets such as TV and MTV promoted artists, but an online portal to connect people and music, among other things was completely new. In addition, supplier threat was low as media companies, which held many rights to songs, were looking for ways to protect their intellectual property and MySpace provided a safe-space to connect, share, and communicate bands and songs with users. The only real threat was that of buyers or users and advertisers. Stickiness on MySpace was credited to giving bands an outlet to let users sample and share songs as well as communicate with the bands. In addition, as users grew, advertising opportunities grew.

The situations that formed as a result of the introduction of a new industry resulted in a market that was somewhat fragmented with no real dominant player. This presented DeWolfe and Anderson a “perfect storm” opportunity to start MySpace.

Xdrive was a typical dot com era startup. It raised $120 million in funding and spent it recklessly on parties, excess advertising, and hiring people it didn’t need. Also, members of its team were not committed and passionate about the product. Thus, the motivation and drive that makes startups successful was not present among employees. This is explained in the fact that Anderson disliked the product immensely. DeWolfe merely hired him because of their personal connection, not his ability to contribute to the startup. In a startup setting, one’s ability to contribute to the overall success of the firm is extremely vital and Xdrive lacked this missing component. Because DeWolfe was able to experience such carelessness with capital, he was able to quickly realize when to troubleshoot problems with MySpace. For example, when MySpace realized that no more than 200 people could be sustained on the site at one time, DeWolfe quickly instructed the developer to build the site to hold millions of people at the same time. MySpace also used mistakes from competition to better their own product, correcting many mistakes users had with Friendster. Additionally, DeWolfe understood that mass hiring wasn’t going to solely grow the business, but instead engaging in business developed was a factor to early success. As a result, DeWolfe attracted bands and club owners in Los Angeles at first to build a user