But what about Google? Why do it?
There is always hidden meaning to deals - the Google-YouTube deal is no exception. Why YouTube sold is pretty easy - $1.65 billion ain't bad for 20 months work and it would have taken at least $50-100 million from Sequoia Capital, their venture backers, to build the infrastructure and salesforce to build a real company. That's real money.
But what about Google? Why do it?
Google is an amazing beast. Massive growth AND huge 64% EBITDA profit margins from basically one service: serving ads on pages with search results. A $10 billion run rate and $130 billion market capitalization. As Darth Vader might say: impressive.
So why bother buying YouTube? Is this a sign of strength ("we bought them because we can turn anything into gold") or weakness (like, say, Ebay buying Skype as their auction franchise weakens) or desparation (Excite merging with AtHome). It makes a difference. On the surface, this looks like a deal from strength - video is the next frontier on the Internet, blah, blah. But really, did Google want to do it or have to do it?
Despite continued growth, Google has hinted at a few signs of weakness. One is their huge capital spending to build datacenters and servers and bandwidth capacity, dinging their cash flow. I thought the search business scaled with much less investment. Maybe not.
And second, Google actually paid for traffic - $1 billion to Dell over 3 years for a crummy toolbar on Dell PCs. The numbers may work, but it's kind of like Hugh Grant paying for something he would get anyway. There may still be someone in Sheboygen who doesn't know about Google. Is search now such a commodity that Google needs to pay money to keep growing?
Perhaps that is what this deal is foreshadowing. YouTube is a company whose amazing growth from zero to 100 million videos served per day is based on copyright infringement, amateurish video (I get it, don't drink Diet Coke after eating Mentos), their stomach to lose money on each video shown and a hobbled together business model to charge record labels to show music videos (we now know Paris Hilton can't sing).
If Google needed an easy to use technology to upload and then view videos (which they kinda , sorta have with Google Video), they could have paid the same $65 million that Sony paid for Grouper. Nope, we don't need your stinkin' technology, Google is paying $1.65 billion (with a "b") or 1.3% of Google's current value, for a media property. Plain and simple. But what does that even mean?
Maybe it will just be an expensive sandbox to play in. Keep it separate from Google (which they should have done with Google China), and give Chad Hurley enough rope to either keep growing and get a decent shave or hang himself. If the legal battles get ugly (and I agree with Mark Cuban, they will), they can just shut it down one Friday afternoon. But maybe losses over the next three years from YouTube, a wholly owned subsidiary of Google, will be less than the $1 billion they are pissing away paying Dell for traffic. But despite all the attempts and Yahoo's Terry Semels strategizing, real media on the Web is still just a concept.
Who are the next media moguls and to whom do they have to sell their souls for the priviledge? The $165 billion question left unanswered by this deal is: What is media anymore? Can you just slap videos up on the Web and become a younger and more vibrant Rupert Murdoch or Sumner Redstone?
(Fade to Carry Bradshaw typing on her laptop in every dopey episode of Sex and the City.)
But what about Google? Why do it?
Google is an amazing beast. Massive growth AND huge 64% EBITDA profit margins from basically one service: serving ads on pages with search results. A $10 billion run rate and $130 billion market capitalization. As Darth Vader might say: impressive.
So why bother buying YouTube? Is this a sign of strength ("we bought them because we can turn anything into gold") or weakness (like, say, Ebay buying Skype as their auction franchise weakens) or desparation (Excite merging with AtHome). It makes a difference. On the surface, this looks like a deal from strength - video is the next frontier on the Internet, blah, blah. But really, did Google want to do it or have to do it?
Despite continued growth, Google has hinted at a few signs of weakness. One is their huge capital spending to build datacenters and servers and bandwidth capacity, dinging their cash flow. I thought the search business scaled with much less investment. Maybe not.
And second, Google actually paid for traffic - $1 billion to Dell over 3 years for a crummy toolbar on Dell PCs. The numbers may work, but it's kind of like Hugh Grant paying for something he would get anyway. There may still be someone in Sheboygen who doesn't know about Google. Is search now such a commodity that Google needs to pay money to keep growing?
Perhaps that is what this deal is foreshadowing. YouTube is a company whose amazing growth from zero to 100 million videos served per day is based on copyright infringement, amateurish video (I get it, don't drink Diet Coke after eating Mentos), their stomach to lose money on each video shown and a hobbled together business model to charge record labels to show music videos (we now know Paris Hilton can't sing).
If Google needed an easy to use technology to upload and then view videos (which they kinda , sorta have with Google Video), they could have paid the same $65 million that Sony paid for Grouper. Nope, we don't need your stinkin' technology, Google is paying $1.65 billion (with a "b") or 1.3% of Google's current value, for a media property. Plain and simple. But what does that even mean?
Maybe it will just be an expensive sandbox to play in. Keep it separate from Google (which they should have done with Google China), and give Chad Hurley enough rope to either keep growing and get a decent shave or hang himself. If the legal battles get ugly (and I agree with Mark Cuban, they will), they can just shut it down one Friday afternoon. But maybe losses over the next three years from YouTube, a wholly owned subsidiary of Google, will be less than the $1 billion they are pissing away paying Dell for traffic. But despite all the attempts and Yahoo's Terry Semels strategizing, real media on the Web is still just a concept.
Who are the next media moguls and to whom do they have to sell their souls for the priviledge? The $165 billion question left unanswered by this deal is: What is media anymore? Can you just slap videos up on the Web and become a younger and more vibrant Rupert Murdoch or Sumner Redstone?
(Fade to Carry Bradshaw typing on her laptop in every dopey episode of Sex and the City.)
