Hurley's World

Valleywag posted an article on why ZDNet’s article on six companies that could buy YouTube was asinine. In true Internet fashion, I felt a rebuttal to the rebuttal was in order.First off, the ZD Net article does indeed pick off an odd selection of companies. Adobe? Sony? Really? However, dismissing media plays such as Time Warner is a little short sighted — even NBC is noting that stripping out content and doing it yourself is not the best route.Valleywag’s commentary that other companies have their own technology plays in the video field is somewhat valid, but misses the traffic play. One of the reasons that sites like YouTube and MySpace are picking up so much business interest isn’t the technology alone. Sure, technology has a big part to play in this regard: MySpace came out with a social networking service that wasn’t the best at the time, and certainly isn’t the best now. There are many, many sites like YouTube online these days, and, as previously mentioned, many of the big players have their own video play. What else creates value there? It’s the network. As the top players look into leveraging the Internet as a media outlet, one of their primary concerns is building that networked base. Anyone can build the technology that powers MySpace and YouTube. Building the networked base is the tricky part. Google Video and Yahoo Video are trying to pick up marketshare in this department: they’re trying to eat YouTube’s lunch. The question is, would it be cheaper to just buy that lunch, rather than earn it, piece by piece? I agree with Valleywag that Yahoo is in an excellent position in this regard, by the by.But how about Valleywag’s earlier article on YouTube’s anticipated demise? I think some of the points are valid, while others are not. Let’s take a look at each point:

• “It’s a money-sucker.” 100% true. It costs a lot of money to power all that bandwidth. Granted, when you’re dealing with that much bandwidth, you can get it cheap. So, while it’s probably costing a lot of money, it may not cost nearly as much as people might think.
• “The money’s not rolling in.” This was based on insider information that YouTube had ad revenue goals of $1 million for July and August, with June direct sales of $0. When did they decide to start the direct sales push? Keep in mind that deals on this level take a while to actually fulfill, unlike smaller contracts. Were those numbers based on a pipeline? It’s not sufficient to just write off all their revenue because of this informal direct sales quote. Those targets may be valid targets for the traffic they’re driving, based on other web property ad sales performance. (If, on the other hand, the direct sales team has been working for six months with those sales figures, then yes, that’s not a good sign.) Besides, direct sales are only one component of revenue. What other revenue streams are coming in for the site?
• “No one will buy it.” Arguable. The networking base does have value, and the technology has some value. It might take some restructuring, but it’s far from value-less. Of course, a price tag of one billion dollars (said with best Dr. Evil impersonation) may be a bit steep.
• “The press points to the piracy.” Any press is good press — if people are writing about it, then at least it’s being discussed. Even Valleywag noted for this point that “YouTube doesn’t really run on pirated work — most of this month’s most popular vids are original, and most borrowed clips are simple fair-use cases.” Anyone seriously considering this site will do their homework, anyway.
• “It’s boring.” Doom and gloom regarding content producers? So long as people can showcase their work and the technology is useful, interesting content will filter its way there. I don’t think there’s a shortage of content producers, nor that all the good ones will be snatched up by major media companies. As more and more people find the site and use it, there may be a decreasing signal to noise ratio, but some innovation can help with that.
• “The bloggers are revolting.” The blogosphere is user commentary, not news. Valleywag noted: “Boing Boing writer Xeni Jardin says it took a full day for YouTube to respond to the accusation that it planned to sell its users’ videos.” The important part here is that they responded. A day is not too long to respond. Again, any press is good press — if the bloggers are talking about YouTube, then it must have some value. Otherwise, why would they blog about it in the first place?
• “You can’t get porn.” This is a reason for its demise? They’ve taken a stance, and considering their advertising goals, it’s completely understandable. When you’re dealing with the next tier of advertisers and agencies, you have to make concessions like this. Besides, there’s more to Internet video than porn. Really!
• “It’s ugly.” The resolution can improve as either a) people get faster connections, or b) compression technology gets better. I’m sure YouTube will be more than willing to improve this quality, so long as the majority of its users don’t suffer from degraded performance. Besides, the quality must be good enough for current purposes — its popularity is proof of that.
• “Its competitors pay you money.” What is stopping YouTube from doing the same down the road, should they decide that’s compatible with their business model?

I don’t know how I keep ending up on the defending side of YouTube. I do think the billion dollar price tag is indeed too much. I also am surprised that it’s as popular as it is. I do think they have issues with copyrighted content, and management of those responsibilities. Yet, I keep seeing people bashing YouTube without good reason. It’s like it’s trendy. We may be building up to another Internet bubble, with overvaluated properties and too much emphasis on “Web 2.0″ and “social networking”, but to completely write off sites like this is to miss out on good potential. The problem is figuring out what the correct valuation is. And that is the mystery that is YouTube: how much would you be willing to pay?