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October 06, 2006

Google + YouTube: What it means

So here’s the next big rumor – that Google will buy YouTube for $1.6 billionM. The WSJ article, the TechCrunch post had some of the early takes, but rather than add to the furor of whether the rumor is true or not, I’m going to focus on why Google and YouTube would be interested in working together.

Here’s my quick take on the rumored acquisition:

Why would Google buy YouTube? To start, 35 million users in the US and 100 million daily video views. But it’s not just the sheer numbers that grabs Google’s attention. YouTube is a gem because it figured out what Google, Yahoo!, MSN, AOL, and all of the other video players in the marketplace couldn’t – that it’s not about the video. It’s really about the community that’s around the video.

Take a look at the screenshot below of the same “Extreme Diet Coke And Mentos Experiment” video on YouTube and Google Video. You’ll notice that YouTube has many things you can do with the video – rate it, save it to favorites, comment on it, share it, see other related videos, and view the user’s playlists, etc. I think you get the idea.

Youtube_1

Then take a look at the Google screenshot. Let’s see… you can add a comment (that’s new). There are a few other additional features like browsing related videos or via tags. But clearly, the focus is on the big, dominant video player.

Google_2

YouTube is winning the hearts of the audience because video search simply doesn’t work. You have to instead rely on the opinions, ratings, and playlist compilations of others to discover good video. 

Why would YouTube want to be bought by Google? My colleagues, Josh Bernoff and Ted Schadler, discussed earlier this week in their blogs that earlier this week that YouTube faces substantial risk with lawsuits coming from music and video copyright holders, and how they could potentially address those concerns – namely by developing technologies to identify copyrighted materials against a body of work provided by the copyright holders. But who is in a better position to develop that technology – 60 burnt out people at YouTube or the legendary technical minds at Google?

Moreover, Josh points out that YouTube faces potential “cease and decease” actions from copyright holders, and risks following in the footsteps of Napster where it could its activities can be seriously compromised. But this morning, Josh and I discussed that a copyright holder would be much more likely to negotiate and partner with Google than a start-up like YouTube. Update: Josh just posted his thoughts on the rumored acquisition as well.

Is YouTube worth $1.6B? You betcha. That’s 4 cents per video stream ($1.6B divided by 100 million daily views * 365 days) and it’s still growing. Another way to think of it is that YouTube has roughly 50 million users (35M in the US according to Nielsen NetRatings, and probably another 15M worldwide) which comes out to $32 per user. It’s high, but it’s also reasonable.

Granted, YouTube is just beginning to monetize its audience, but having access to  Google’s über-ad network gives it a huge leg up. But this is where I hope YouTube stays the course in not cluttering up its unique interface with sponsored text ads, or its video experience with pre- and post-roll video ads.

Youtubead Butterfinger The real opportunity for YouTube is to create a completely different kind of advertising form, one that is based on community engagement and involvement, rather than the traditional interruptive style of advertising. Take a look at their home page – here’s a screenshot from today. There’s a small text link to a “Follow the Finger” video contest sponsored by Butterfinger (screenshot also included). Advertisers are loathed to develop these special campaigns together – they would much rather slap on existing banners and promotions. But given the size and attractiveness of the YouTube audience, the site can command not only top dollar with exclusiveness, but also demand that advertisers adhere to specific standards that guarantee the best user experience.

If the acquisition goes forward, Google will be pressured to quickly realize a return on its first major investment. My hope is that Google will resist the temptation to turn YouTube into yet another cluttered ad space and allow the company to push advertisers into this new, engaged form of advertising.

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Comments

John

>that it’s not about the video. It’s really
>about the community that’s around the video.

I'm not sure that is why YouTube got ahead. I think it was because they did not actively screen copyrighted content before allowing video to be posted on the web (unlike Google Video initially). That allowed for instant gratification for most users who wanted to post video. The defining moment was Saturday Night Live's "Lazy Sunday" Certainly the community aspects have helped, but that is not why YouTube got its head start IMHO.

Bambi

great observations

Ken

Charlene,

When you say video search simply does not work, do you mean video search does not work YET? Or do you see real issues with video serach ever working?

I agree with your thoughts and I do not think the copyright issues are as deep a problem as most, meaning they will get resolved promptly and not create a fight. If the video industry is doing anything right, they are refusing to follow the music folks into litigation land. These things get settled, especiallly if Google is involved. Great insight, thanks!

Max Kalehoff

I think the community you note is key, but John is right above. YouTube got ahead because "they did not actively screen copyrighted content before allowing video to be posted on the web (unlike Google Video initially). That allowed for instant gratification for most users who wanted to post video."

It's ironic that you chose screenshots of Eepybird and their Extreme Diet Coke and Mentos experiment. Those guys are among the content creators that are getting screwed (for lack of a better word, sorry) by YouTube. That is why the partnered up with Revver.

YouTube is old-school Napster for Video. That can be good for brands and content distribution, but it also doesn't negate the fact that a lot of big-business and semi-professional passionate amateurs are having their content stolen so YouTube can make $$$ off the page views that non-lisenced content draws.

More on YouTube versus paid-model Revver here: http://attentionmax.com/blog/2006/09/can_social_video_honor_copyrig.html

Charlene Li

John and Max: You've got a great point, that the non-review nature of Google is a good reason why YouTube was able to get video *submitters* on board quickly. But the vast majority of peole who use YouTube are the *consumers* of video. I would argue that if Google had started with the same non-review approach -- but none of the social tools -- it would still be where it is today.

Charlene Li

Max: About the use of the Extreme Diet Coke video. I intentionally used that video as an example but then completely forgot to mention why. They don't share in any of the revenues today on YouTube, but given the deal that YouTube signed with Warner Brothers, and given the deals that Google signed with book publishers, it's not a far-fetched idea that they would receive their fair share of advertising dollars in the future. The problem is in a world of non-interruptive advertising, how do you distribute dollars if the ads don't appear around your video? This is another reason why YouTube needs Google -- Google would be able to build the sophisticated ad system a la AdSense for Content Creators needed to attract creators like EepyBird.

Adil Gunaslan

Good read. I agree the community is key too. I also think because YouTube emerged at the right time it is widely considered to be a phenomenon. Contrary to Google Video.

If the Google rumor proves to be true, it will be interesting to see if YouTube becomes primarily an advertising platform and if the community will remain loyal.

Charlene Li

Ken: To your question about the state of video search -- it works today, kinda.

The problem is it searches primarily the meta data and in some cases like Blinkx and Podzinger, they index the audio track with voice recognition. Google has some interesting technology it acquired through Neven Technologies that does face and item recognition in photos. Fast forward in three years and the Neven technology will probably be fast enough to index faces and items in video, which is just images at 30 frames a second.

So I'm waiting for the day for REAL audio and video indexing and search -- not the pseudo-search of meta data that's taking place today.

Mr Wave Theory

How Much Would Founders and VCs Make on A YouTube Sale?

YouTube may be wanting to sell because there are so many questions about its future.

How much would everyone make if YouTube sold today?
If the company sold at $1.5 billion, assuming the rule of 3, i.e. VCs own 1/3 and Founders own 1/3 and employees own 1/3, then here is what everyone would make:

Sequoia Capital - $500 million. They invested about $30 million So, that would be 16x their money. Not bad. Not a Google homerun, but great for less than two years worth of work.

http://mrwavetheory.blogspot.com/2006/10/how-much-would-founders-and-vcs-make.html

John

Read some of the comments after my posting just now. I'm surprised that YouTube has not also moved towards a Revver model as well. Then again, perhaps a lot of people would try to monetize copyrighted clips that they did not own.

>But the vast majority of peole who use
>YouTube are the *consumers* of video. I
>would argue that if Google had started with >the same non-review approach -- but none of >the social tools -- it would still be where >it is today.

How do most people view or hear about YouTube videos - through the community feature? The way I watch videos on YouTube is:
1. I get an email from a friend/co-worker forwarded to me
2. Visit a web page with YouTube video embedded.

I don't know if YouTube gets most of its traffic because of the community, but from my perspective (without any hard data), it's all word-of-mouth via email. It's the *content* on YouTube - much of it illegally copyrighted - that drives the traffic. I'm sure community helps, but to what degree - ?

I agree - $1.6 billion is not bad for 2 years worth of work! I don't think acquiring YouTube is worth the legal risk. I wonder what the lawyers at Google (and for that matter, Yahoo!, Microsoft, etc.) are thinking.

synthetron

Please join us in the collaboratively filtered realtime discussion:

TOPIC: google youtube

START TIME:

2006-10-10 , 00:00 CEST (Brussels, Paris, Rome, Madrid, Stockholm).
2006-09-10 , 23:00 BST (London, Dublin, Lisbon).
2006-09-10 , 18:00 EDT (New York, Detroit, Toronto, Montreal).
2006-09-10 , 15:00 PDT (Vancouver, Los Angeles, Tijuana, Yukon).

TO JOIN:

go to the following url:

https://www.synthetron.com/account/tag/conversation/googleyoutube

Confirm [yes] to the security warning and follow the instructions.
(In some companies a proxy login dialog box will appear. You then need to type your company internet username and password).

YOU NEED:

A Java plugin installed on your browser.

Roy

Don't know what's the big deal with wanting to sue YouTube! Can't download the stuff, unless you have a recording device! So it's not easy, like some other sites which allow easy downloading of the videos. Most of the stuff is all clips and videos which promotes TV Shows and music artists. Half of it is good quality video and some of it so so! Anyhow it's a great site as it is now, good to access memories at your fingertips without having to search for old VHS tapes and stuff and having to load them to console that moment of wanting to see something again!

Mohak

Hi Charlene, at the outset, let me tell you that I follow your blog religiously!

YouTube wanted someone to foot the huge bandwidth bills... And Google's got servers!

IMHO, like most media, I see internet to also reaching a time where users would like to sit back and lessen the involvement in assimilating content. The involvement is only to 'find the content' rather than view it...

And Google's got smart people to know that.

Strangely, Google is increasingly throwing up 'organic results' in search which point to Youtube.?!?!?!

http://mohak.wordpress.com/2006/10/04/google-takes-over-youtube-or-youtube-takes-over-google/

End of transmission.

Rodney Rumford

Charlene,
You observations are spot on. The future is really 3 years away when the video recognition moves forward. But for the immediate future google purchased a community that has the ability to be monetized, and at $32.00 per user that is a very resonable price.

If they can get a user to click on less than 1 ad per week (at an avg. price of $1.00 per click) then they are in clear in under a year and have recouped the investment. The investment looks really smart when you start looking at it that way.

It is also worthy to note that big companies such as Google failed to create a community around their Google video offering. The value is in the community and traffic, not just the technology.

Rodney Rumford
Founder: Podblaze & NewMediaGulp

Walter Carl

Great post, Charlene. You lay out the issues in a very clear and concise manner. I'll recommend to my students to read it!

Cheers

Walter

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Yankee

Thanks for the post. I will make a threat of this too in next time

Entertaining Polls

Google is really getting into the video side of things with first the release of their own video search engine and now with the acquiring of YouTube, Google will grow even faster as a company as a whole. I am wondering what percent of people think that Google’s Acquistion of YouTube Is A Positive One at Entertaining Polls.

Vic

> YouTube has roughly 50 million users .... which comes out to $32 per user.

If memory serves me right, hotmail acquisition was pegged at about $40 per user (10 million users, $400 million deal), back in 1999 or thereabouts.

Does it mean that we're now back to the 'pre dotcom bubble burst' valuation scales, at least, to a limited extent?

Motiono

Yahoo answers has great people with ability to figure out where the best shows are, to see a discussion on what is hot and what isn't in terms of videos being served on the internet through Giants such as Google and other big media companies please visit the following Yahoo Answers site.

Gtube

i have made a website that combines youtube and google together called Gtube.
Also on this website you can write your own name in Google writing
http://gtube.co.uk

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