Google/YouTube: Before It All Gets Irredeemably Chewed To Death

Posted by: Jon Fine on October 9, 2006

Everyone should have seen this coming (excuse me, perhaps I also mean: Before late last week, I didn’t see this coming, either) because:

1. Like Google, YouTube is a company that started out with the idea of doing one thing very simply and very, very well. And like Google, it was not founded with a business model in mind, it was founded with functionality in mind.

2. Google is not a content company. This means there is less internal yukkiness there about YouTube’s raison d’etre; there won’t be divisional heads at Google who would be coming to company meetings with machetes held between their teeth to “greet” the new guys, as there may well have been at, say NBC or Viacom.

3. Double-underscore the non-content company commonality. Both Google and YouTube have thrived by espousing a very casual attitude towards the received wisdom about what you can and can’t do with content. As such they mesh with Web ethos on such matters perfectly (no surprise—they are two defining entites of the Web of right-now) in ways that traditional media companies and even someone like Yahoo never could.

And while we’re at it.

4. Insert joke about Facebook.

5. $1.65 billion for an unprofitable company. I will repeat: $1.65 billion for an unprofitable company that’s, like, a year old. I don’t know if anyone right now would pay $1.65 billion for the Los Angeles Times, which has been a dominant media player for decades and which last year pulled in around $220 million in profit.

6. Right now Tom Freston is totally thinking “well, at least Sumner can’t fire me over this.”

Reader Comments

Don

October 10, 2006 2:16 PM

There isn't a programmer alive who isn't staring at this with total and complete envy. And shock. The dollar amount is a shock. We are all in the wrong business.

Adam G

October 11, 2006 11:29 AM

Jon, if you're such a clever expert, why didn't you come up with something like youTube and 'do' instead of 'think'?
The east coast entrenched cadres are a good few years behind every wave.

mediadavid

October 15, 2006 10:26 AM

Rights issues will determine how good a deal this was.
Spend five minutes scanning youtube and you find a dozen potential rights landmines.
everyone knows about the posting of material without copyright approval, but there are snippets of music used without paying rights fees during homemade productions, there's no way to know if people are posting their own videos or videos their friends (who didn't give permission) shot and what about all the folks who are in those homemade vidoes and who have not signed permission forms.
all of this may work out, but my guess is that once google owns youtube, a lot of lawyers are going to be employed

Sanjay Dalal

October 17, 2006 5:55 PM

In $1.65 Billion Innovation and Counting (http://creativityandinnovation.blogspot.com/2006/10/165-billion-innovation-and-counting.html ), I have tried to make sense of the valuation.

If 1% of the 70 million Videos that are served daily click on a Google served advertisement, this would result in 700,000 daily click-through or 255 million click-through in a year (without accounting for any new growth). And if you take a five year period, it would cost Google $1.29 a click in today's dollar. Or to put it another way, Google must create new revenue of $329 million a year without making any profits (assuming it sells ads at $1.29 a click). A steep price to pay for a Video click? Only time will tell as to how big the new YouTube Video Service becomes under the auspices of Google, and how Google will be able to cash in on its investment and eventually make this a $1 Billion business.

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