This is a comment from Dane Madsen an active participant in the Oldtimers group (OT). I asked him if I could reuse this piece since I thought it provided tremendous insight into the Google YouTube acquisition. I particularly liked his line about: “Google is a technology company; however, they derive nearly 100% of revenue as a media company. Is this incongruous? No, and the YouTube acquisition will not be a different story.” In allowing me to post this comment he also said something very telling about the media play about the acquisition, to wit:
“I have been on this issue since the announcement and found the OT list to be very quiet about the subject. I am not certain why.” Enjoy.
A day is not a trend. I notice no references to the down tick in the traffic at the end of Q2. I believe that many cold winds are blowing on this deal from the gallery – price that begets fear of another unhealthy trend in the industry (that manifests itself in cash-for-toys turning other twenty-something’s into jet-owning, globe-hopping, children of the world), more interest in the sticky issue of trademarks and how that may shake out for all of us, among others. What we all know is that the traffic will change.
As everyone (the few) on this list that has read my rants about Google knows (and I think I have a perfect record – wrong every time), I am not a huge fan of Google in its self appointed role as the leader of the interactive-think and “do no evil”. In this instance, I actually think that while this marriage is one of convenience, it is a marriage that has great merit for both parties. Google has shown a knack for creating interest and greater momentum in online advertising (do any of us think that the last 3 year run up in our business would exist if it were up to the “creativity” of Yahoo, AOL, or MSN). Their indisputable 800-pound gorilla role makes this a deal to investigate. The question is of course, the economics. Perhaps a better question is; do the economics matter to Google?
Google is a technology company; however, they derive nearly 100% of revenue as a media company. Is this incongruous? No, and the YouTube acquisition will not be a different story. What is difficult is to get your arms around the price rational because a private Company and a very secretive Company have joined forces. Perhaps the better evaluation is to ask what would have happened to YouTube if the 800-Pound Gorilla did not acquire them. Taking this perspective provides comfort that Google may have made a bargain.
First is the issue over copyrights. With a plethora of the viewed (how many people would actually watch a self made video of a puppy chasing a laser-pointer - really) YouTube content being copyrighted and the media guns coming after YouTube, they needed to run to a Company that has repeatedly stymied conventional litigation logic and fought significant battles on this front with a fight-to-the-end mentality. Google has proven that no copyright lawyer causes them fear, in the US or abroad. With over $12 billion in cash and growing, they can fund litigation from a fraction of its interest income.
Second is that YouTube has user support that could be monetized with great ad serving and targeting technology, but it does not have that technology and mindset as of yet and would have not had it for some time given its economic position. Even then, assuming it could have attracted a team to build this, it would have been some time before YouTube would have been able to build it. Running into the arms of the biggest ad technology company made simple economic sense.
Third is what YouTube’s future would be without this move. At some point, user generated content would/will wane as the winds blew the bored and young to the new, new thing and another use for the incredible user traffic will be needed. Google has the muscle to use YouTube to negotiate with all owners of content, in addition to the technology to share ad revenues, and most importantly the willingness to share those revenues. Ultimately this is a match made in heaven. Imagine this not as a battle for the social network, nor a move to keep Redmond out of the fray, but Google’s first material skirmish with Apple. Do not be surprised when YouTube will be a platform for ABC/NBC/CBS et al to do time shifting of their own of current content– perhaps within fractions of an hour – to replay Lost, Disparate Housewives, or the NFL/NBA etc – with a new and different audience and ad opportunities.
Google has demonstrated they have the intuition they can monetize nearly anything if given enough time to study it. YouTube will be one of those things. Even if YouTube generates modest income (and it will for the reasons above) Google paid with script that is less than 2% of its market cap that day and acquired a fresh set of mindshare that will meld well in the Google organization. Unlike News Corps acquisition of MySpace, Google and YouTube are more alike in the mold-busting, user delighting, media/interactive world.
Just my opinion – I could be wrong
Dane
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