It’s deja vu all over again as an unprofitable Internet startup, barely 19 months old, was bought for $1.65 billion yesterday. But the startup in question, video-sharing phenomenon YouTube, is not just any startup looking to cash in on hype. YouTube is the eyeball catcher of all eyeball catchers, racking up 100 million-plus videos watched per day, and has become a brand that has broken through to the mainstream, to the non-technical masses, to our grandparents and little kids.
And yet… how do we put a value on what YouTube has done and accomplished in its short history? By all accounts, the site is spending more and more each month to pay for the huge bandwidth necessary to serve up that many videos. And despite the flurry of deals with mainstream media companies, YouTube still hasn’t clarified how it will make money in a certain way. And the Catch 22 is that it can’t make money without intruding on the sacred user experience — meaning ads inserted before clips show or in ways that would actually get people’s attention. A banner ad here or a text ad there isn’t going to generate much money when people are focused intently on the video that plays.
So when brash entrepreneur Mark Cuban said recently at the Online News Association conference that Google would be “crazy, crazy, crazy” to pay so much for YouTube, you have to take him seriously. Besides, he was the one who sold his startup Broadcast.com to Yahoo for $5 billion-plus in 1999, so he knows all about craziness in the dot-com universe.
I can’t say with any certainty what will happen with this marriage made in Silicon Valley startup heaven, but I can lay out what I see as the potential upsides and downsides of such a deal. Unlike the ridiculously conflicted “analysts” who gave their thumbs-up on GoogTube to the Wall Street Journal recently, I have no stake in Google or YouTube except as an interested observer and frequent site visitor.
Why Buying YouTube Is Crazy
> Most people who criticize YouTube believe they are a lawsuit away from going under. That’s a bit of an oversimplification of the situation, but it’s true that the legal situation around all the copyright violations that happen on YouTube is unclear. Sure, the site takes down violating videos when it finds them, but they also generally pop right back up somewhere else on the site.
> YouTube is losing money, and there’s no obvious way it will make money at the moment. This is Google’s bet that it can figure this problem out and make it work without alienating viewers and participants. The search kingpin has said it won’t run ads before videos, and that’s perhaps the most proven way to make money from online videos.
> The video quality is poor at YouTube and it’s hard to find good content there without watching a lot of crud first. This is the “empty calories” problem at YouTube, where you watch many, many bad videos for every good one you find.
> The Internet can be a very transient place for content, and it would be just as easy for another pair of twentysomethings to start an even better version of YouTube in their garage and upend the site.
Why Buying YouTube Is Genius
> Even in its short history, YouTube now has the brand recognition and momentum and notoriety to be THE place for video online. Just to have all that video in one place to index will be worthwhile for Google, which has the stated goal of becoming the main reference place for all information in the world.
> Right as the deal was announced, Google and YouTube announced major licensing deals with Universal Music, Sony BMG Music and CBS Corp. This possibly defangs the lawsuit threat from Universal, which had made noise about copyright violations at YouTube. Plus, Google already has a legal team together to deal with its controversial Google Print project and attacks on Google News.
> Google has built the premier search engine and the paid search advertising structure, where relevant ads are served up next to “natural” search results, thanks to its huge staff of super-geniuses. If these brainiacs can figure out how to monetize search results, why can’t they figure out how to make money on viral video?
> Google is content neutral. If a media company such as News Corp. or Viacom, or even an aggregator such as Yahoo, had bought YouTube, there would be questions about how it promotes different videos and sorts and tracks and pulls them down. With Google, there are less questions about content decisions because Google is viewed as being a more pure computer-generated aggregator and not a site with human editorial decisions being made.
What do you think? Was this a crazy deal that harks back to the bad old dot-com boom daze? Or is this a perfect Web 2.0 marriage that will pay dividends for all involved parties? If you use YouTube regularly, are you worried about the Google buyout or happy about it? Please share your thoughts in the comments below.
[GoogTube graphic from PaidContent.]