Fox Interactive keeps on buying

A few days ago I had breakfast with Peter Levinsohn, President of Fox Interactive Media, days after Rupert Murdoch made a $5 billion bid for Dow Jones. We chatted about a variety of topics, but most of them were off the record. One bit I got on the record was about MySpace/FIM’s acquisition strategy.

Levinsohn, who has spent nearly 20 years at various News Corp. business groups, said that the company wasn’t backing off from making acquisitions, but was looking to make small acquisitions – ones that filled out holes and helped with monetization better. (Of course this was before the $250 million rumored-but-not-confirmed-by-FIM deal to buy Photobucket.)

Looks like he was serious. FIM is rumored to have acquired Flektor, a slide show widget creator. TechCrunch reports that the price is in the $10-to-$20 million range. Fox Interactive spokeswoman declined to comment on the deal.

The deal is seen as an additive to the company’s rumored PhotoBucket purchase, which is yet to close according to our sources. While the Photobucket deal is about reuniting users with their data (after all the two most popular actions on myspace are photo-viewing and message writing), the Flektor deal is about helping those users better utilize their own data.

Flektor tools can help MySpace compete on an even footing with the likes of Slide and RockYou, both offering around 150 million slide show views a day. The acquisition, if true, is yet another proof that widget (and other start-ups) need to diversify their user bases, because sooner or later MySpace is going to end-up compete with them. This is the way of the large companies, and it is not unusual. What is strange is that start-ups ignore this fact of life – putting their destiny in other people’s hands.

Think this way – if a company trying to do an IPO gets 50% of its revenues from one customers, even the bravest investor runs away from that deal. Why should it be any different for start-ups who are basically hawking traffic and eyeball stats? Funnily enough people have been ignoring what Fox executives have been saying for a while now.

This situation is not going to change anytime soon. For first four years MySpace ended up giving up on its data to third parties, thereby boosting valuations of those third parties. Having had to spend a rumored $250 million to buy back that data, MySpace is not going to make the same mistake again.

Flektor’s competitors have hopefully learned this lesson. Rock You co-founder Jia Shen says now only 40% of their slide shows are served on MySpace, followed by Bebo and Friendster. “Our share of MySpace traffic as a function of percentage has been going down,” says Shen, who points out that while it is easy for MySpace to move into the widget space, it remains to be seen what they can do.

Slide founder Max Levchin says as “a third party developer we add a ton of value to the networks,” who sees his company as (social) network neutral. Slide is beginning to see gains on other networks indicating that it is not a MySpace-only widget play anymore. “We are happy to be growing in as many networks as possible, so reliance on any one is a bad idea.”