My concerns with Youtube (it’s not the business model)
I don’t worry too much about the business model for Youtube – after all it’s pretty clear they could be making a lot of money selling pre-roll or post-roll ads on the site. With 100 million daily videos served they could probably get a CPM of $1 on low quality content playing 10-15 second post-roll ads and much more than that on premium content. At $1 CPM that’s $36.5 million per year in revenues with 95%+ gross margin. At $10 CPM that would be $365 million making the acquisition price extremely reasonable.
What worries me most about Youtube are copyright issues. It’s not just that people are uploading clips from TV shows, but copyrights are infringed in much subtler ways in a much larger portion of the content. If two teens are singing with music in the background – it’s a copyright violation. To some extent Youtube is protected while it’s not profiting from the content but monetizing it with ads. In order to start monetizing the site they are going to have to cut deals with many copyright owners – and there are many more of those than you might think. In many cases in music alone it’s unclear who owns the publishing rights for a song… It’s a non-trivial problem and not one that Google has ever truly faced before on this scale. It’s going to be interesting to see how they play it.
My second worry revolves around faddishness. Online video, like social networking, is here to stay. However, switching costs are low and teenagers are fickle. It could very well be that some site takes over from Youtube – or MySpace for that matter – as those sites “grow up.” Then again they could become the MTV for the new generation, but as trends change ever more rapidly, it’s hard to believe that any company will be able to keep its pulse on teen taste for 20 years as MTV has done so far.
I suppose for Google most of this is irrelevant. Youtube adds AdWords inventory and gives it a shot at being more than a one-trick pony. In fact given Google’s lofty valuation, I would go on a shopping spree buying valuable real assets.