Monday, June 22, 2009

The problem with YouTube.

Dan Rayburn nails it:
Maybe some of us simply want to see different things for the industry or judge the success of the industry on different metrics. For me, I want to see companies in the space last for ten years with a sustainable business model that actually generates revenue. To me, that is the only real way any company should be judged in any industry, Internet related or not.

But these days, especially with YouTube, many simply want to only focus on their "market share" or the number of videos being consumed as somehow equaling success for the company. That seems to be the same metric that was used in early 2000 when the vast majority of content portals said that all they needed was a lot of eyeballs to be successful and that the number of eyeballs was all that mattered. How well did that work out?

I've seen a few blogs posts this week that say it really does not matter how much money YouTube is losing since they maintain such a dominant share of the number of hours of videos viewed each month. While that's a nice stat, for me, it means nothing if you can't generate revenue around it. Would you rather run a business that can't sustain itself, but has a lot of market share, or run a company that is profitable, but has less of a market share? The fact that it's so hard to name a lot of companies that are still in business today, from just five years ago, shows that this industry has to be more than just about who has the most "market share" at any one given time. This has to be about creating a sustainable business and that is all that should matter. How many companies really care about their "market share" anymore when their company goes out of business? So when people say things like YouTube has "strategic value" to Google or is "part of the bigger picture", that's all just marketing terms. Try defining them.

3 comments:

Kyle said...

Pouring money into YouTube as a loss leader might make sense for Google if you consider Google as what it is, not a tech company, but an advertising platform. Anything that increases internet usage has the potential to increase Google's ad revenue, even something like YouTube which has minimal ad-generating capacity when considered by itself. I'm not sure if the increase in total ad-producing internet traffic offsets the bandwidth costs of running YouTube, but any calculation of profitability of YouTube has to at least consider this metric. Rayburn is probably correct for applications that don't dovetail with other revenue-generating systems (e.g., Twitter (now on its third round of venture capital), which doesn't look to be sustainable unless it gets acquired by someone).

Brandon said...

It's also a mistake, I think, to assume that Google will keep YouTube exactly the same; there are already signs that Google intends to use YouTube as a platform for paid content providers (keeping the free side for the traffic to the site, but putting more paid services front and center once they are there), thus expanding YouTube's revenue beyond what it is now. The thing about Google is that it has time and resources to toy with something like YouTube until it is profitable, either directly, or (as Kyle says) by increasing traffic to Google projects that are.

Of course, even Google faces a few challenges on this one.

John Farrell said...

...there are already signs that Google intends to use YouTube as a platform for paid content providers (keeping the free side for the traffic to the site, but putting more paid services front and center once they are there), thus expanding YouTube's revenue beyond what it is now.

That would definitely interest me.