Re: Acquisitions: Google/YouTube, what do you think of the deal?

From: David Yancey <dyancey_at_proactics.com>
Date: Wed 11 Oct 2006 20:41:44 -0500

Is Google going down the YouTube? Well, like most self-styled rational
analysts, it would seem so to me, at least on a P&L, asset valuation
basis. But here_s a contrarian view (not mine) that suggests at least
one dimension of the deal that could make it economically successful for
Google:

http://www.marketwatch.com/News/Story/Story.aspx?column=Internet+Daily&dist=nwtid&siteid=mktw

Many are decrying the deal on the grounds the Google brigade could have
built their own video thing into a YouTube equivalent. These pundits
point to the relative low-tech used in YouTube and similar interactive
community platforms, and suggest that basically anyone can make a YouTube.

Ahhh, but they *didn_t*.

Besides, there_s no evidence the in-house innovation efforts at Google
are capable of producing even a minor hit, much less a true phenom on
the order of MySpace or YouTube. Realistically, the in-house alternative
is really not one, unless G were willing to wait for a few years, with
the likely prospect after spending many millions of shareholder dollars
of ending up with a distant also-ran like Froogle or Orkut.

So the compelling point is that an in-house development would have taken
*time*, and, even if it were a raging success with the under 25ish
(mostly) boys who post and consume this video trivia, it would have
taken probably at least two or even three years to pry maybe half of the
YouTube eyeballs away. (assuming most of these ever-moving eyeballs
haven_t moved on by then to some other silliness.)

IMO, Google is short-cutting its own development efforts to buy active
eyeballs, pure and simple. And I_d agree with many in challenging the
potential value of this particular set of younger male eyeballs. Aside
from branding purposes for beer, suggestively aphrodisiatical underarm
deodorant, and wannabe hip-hop sounds and gear, it_s not clear if this
demographic is going to provide many serious-purchase-intent clicks, no
matter how many ways Google guys figure to cram the YouTube pages with ads.

But who is to say that this entertainment hungry, highly mobile,
semi-literate mob of mostly guys can_t be made into a profitable revenue
stream? Bigger surprises have happened online. IF someone had, waiting
near the wing-man, so to speak, one or more ways to channel this huge
audience segment toward *sustainable* fee-based services and products,
well, then, at a cost of about a half-cent per page view (amortized over
just three years), $1.65 billion actually looks pretty *cheap*.
Especially if one can count on getting most of that half-cent back from
PPC and branding advertising.

What many seem to ignore in this radically different interactive media
consumption economy is that aggregating the audience before someone else
can is the real goal for these mega-media sites, portals, mass-audience
interest communities, and search engines seeking to build stickiness.
Having the repeat audience for your particular content is the primary
key to the business model. Product superiority plays a part, yes, but as
MySpace proved, a site that manages to reach the audience tipping point
need not have any technical advantages going for it. Even vaunted Google
started with an inherently flawed notion of how to make a search engine,
and still managed to build a massive audience share before the
vulnerability of its _technology_ was exposed by click-fraud, spammed
search listings, and lack of relevance.

The questions then become, not _was $1.65 billion is too much to pay for
a seemingly idiotic media property_, but:

1 Will the mundane innovators at Google be able to do anything
profitable with this audience, without totally killing it with ads?

2 Could Google_s bosses have dared risk that some *other* eyeball-hungry
monster media company have grabbed the YouTubers?

David Yancey
http://www.tootoographic.com -- _See our fast-growing lines of grown-up
humor shirts in Amazon.com, and watch for our _Down the YouTube_ funny
T-shirt_





Received on Wed Oct 11 2006 - 20:41:44 CDT