Google + YouTube: What it means

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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