Why Would Apple Ever Want To Buy YouTube?

Posted by: Arik Hesseldahl on August 23, 2006

How many times have we seen this story play out? Little Web site starts up, turns into a raging success, gets acquired by a big company with huge financial resources, then ceases to be relevant.

Speculation about what the heck is ever going to happen to the fabulous Web fad of the year YouTube is running high. And at least one suggestion from Robert Young over at Om Malik’s Gigaom suggests that Apple should break out its checkbook, tap some of that $9 billion in cash to grab YouTube, and make it part of the video arm of iTunes.

Calling Apple a “laggard when it comes to the Web,” Young argues that Apple would vaunt to the head of the Web class with such a deal, and bring in a new stream of online advertising revenue to boot. Since when has Apple ever been a player on the Web. When did Apple ever elucidate a desire to get online advertising revenues? Its Web ambitions, such as they are, serve to help it do what it does best — sell computers and iPods.

The rest of Young’s argument is flawed for many reasons. First, Apple is not a media company. The iTunes Music Store is primarily a retail outlet, just like your old neighborhood record store. Why does it even exist? Say it with me: iTunes exists to sell iPods. Good. Say it again until it sinks in. The music store, for all its success and influence, is a low-profit operation. Selling iPods on the other hand, is very profitable business, as I reported in October. It costs Apple about $151 to build a 30-gigabyte iPod that sells at retail for $299.

YouTube, is however, a money pit. Bandwidth costs are running about a $1 million a month if not more. Advertising revenue? Not so much. Sure, I’ll reserve judgement until its clear how that channel strategy — the Paris Hilton channel? — participatory video ads work out. But you can place me firmly in the “skeptical” camp.

And if Apple decides it wants to get into the business of user-generated content (an overused Web catch phrase if ever I’ve heard one) why bother spending a billion or so take YouTube when Apple could build its own? Already a major force in the distribution of Podcasts — the user-generated content of 2005 — Apple could build a YouTube-like section within iTunes for videos, and just by showing up become a YouTube rival with a built-in conduit to the iPod.

Sales of the iPod are slowing, Young argues, and as such, Apple nees a “new catalyst.” How’s about full-length movies? We already know its coming: Lions Gate President Steve Beeks essentially let the news slip out during an earnings conference call that we’ll be seeing downloadable movies on iTunes before the end of 2006. That would probably coincide with the release of some kind of new iPod device with a greater emphasis on video than the current generation. If Young doesn’t see a iPod-iTunes cataltyst coming, he’s just not looking.

Finally he says, grabbing YouTube would make Jobs a “social media mogul,” and put him in the class of the likes of Rupert Murdoch (?), whose News Corp. now owns MySpace. What? Being a computer industry mogul first and then a big-media mogul second wasn’t enough? In 20 years will anyone even remember what the phrase “social media” means?

Sure Apple could get YouTube. But it certainly doesn’t need it. Save that $9 billion for something useful, and stay away from Web fads with unproven business prospects.

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