Call it the $900 million question: can Google make money selling adverts to the rebellious teens, struggling musicians and self-publicists who populate MySpace?

At first glance, the odds are indeed long. MySpace, owned by News Corporation, the parent company of Times Online, may be the fastest growing site on the internet with close to 100 million members, but it also carries one of the lowest ad rates in the business at roughly 10 cents (5.2p) for every thousand impressions, according to analysts.

What’s more, social networking sites have yet to prove themselves as a meaningful advertising medium. User-generated content is fickle by nature. One day, a new band or clever online diarist may draw a crowd, the next day they are forgotten, leaving an endless inventory of near worthless pages. Plus, as the community grows, the level of risqué content is bound to increase, potentially scaring off some advertisers.

The biggest concern, however, is MySpace users themselves. "Historically, this is an audience that is not receptive to ads," Nate Elliott, an analyst with Jupiter Research, says. "This is why the ad rates are so low. I don’t think Google is going to be able to change the habits of MySpace users to make them suddenly more responsive to ads."

A quick tour of MySpace shows that some advertisers with deep pockets have shelled out, including eBay, movie studios and O2. But a few clicks away from the primary pages brings you into a virtual advertising ghetto of direct response advertisers: obscure dating sites and companies that dangle free iPods for those willing to take a survey.

"Fundamentally, the ad inventory is not very good," Mr Elliot adds, "so this would appear to be a deal that favours MySpace more than it does Google, in terms of the cash."

Still, MySpace can justify its position as the most coveted piece of real estate on the internet for the major search engines, particularly as prime internet ad inventory grows scarcer. Google won the bidding war against Microsoft’s MSN, Yahoo! and InterActiveCorp's Ask.com.

As part of the deal, Google will pay $900 million (£472 million) to News Corporation to provide the search technology on MySpace (and a string of other sites owned by News Corp's Fox Interactive Media) for three years and nine months. Plus, Google will sell banner and text ads on the sprawling site, which last month was ranked as the most popular site on the web among American internet users. This recoups the $580 million (£300 million) the media company paid for MySpace last year, and makes a big dent in the $1.3 billion (£680 million) it has spent on internet acquisitions in the past year.

The deal is not a matter of money in the bank for News Corporation, though, as MySpace and the other sites, including RottenTomatoes.com and IGN.com, must achieve a string of traffic goals. Analysts have also suggested that payments will depend on ad-impression goals from MySpace users, meaning that the site’s users will have to click through to advertisers’ sites before the company sees the cash. To that end, the two firms are stressing that this is a partnership – not a straight-up investment.

If there is a company that's feeling particularly anxious today it will be Microsoft. Its pledge to become a major player in search has yet to materialise. Thus, Google outbidding Microsoft for the honour of running the search and ad sales functions for the world’s fastest growing website will relegate Microsoft’s MSN to a distant third behind Google and Yahoo!.

"Google can afford to pay a quarter of a billion dollars per year on such a deal if the reason is to freeze out Microsoft," said Mr Elliott.

Bernhard Warner is a former Reuters internet correspondent and senior editor for The Industry Standard Europe. He writes about technology, the internet and media industries and can be reached at techscribe@gmail.com

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