John’s Blog

…Steve Ballmer? WTF?

Here’s what he said in a BusinessWeek interview (italics are my own):

What do you make of the deal between Google and YouTube?

[You've got to ask] could Google do whatever it is they’re hoping to buy without paying $1.6 billion? Is YouTube really some permanent, long-term thing, or is it a fashion? I’m not saying it is a fashion. But every time we do valuations, I wonder if we can afford to keep this hot for 10 years. I’m sure somebody at Google has got to do the same analysis, because even $1.6 billion is more than 1% of their market cap.

Is there a business model? Right now, there’s no business model for YouTube that would justify $1.6 billion. And what about the rights holders? At the end of the day, a lot of the content that’s up there is owned by somebody else.

The truth is what Google is doing now is transferring the wealth out of the hands of rights holders into Google. So media companies around the world are all threatened by Google. Why? Because basically Google is telling you how much of your ad revenue you get to keep.They better get some competition. Us. Yahoo! (YHOO). Somebody better break through or you can short all media stocks right now. As long as there are two, you can hold onto media stocks. Google understands that. And that’s one reason why they’re willing to lose money up front. Just look at some of these deals. That MySpace deal (where Google provides the ad engine for MySpace). We bid a lot of money on that MySpace deal. And we got outbid. We wanted to win that MySpace (NWS) deal. At some point, we said we can’t do this. Now Google can afford to spend more than us and Yahoo because they have more people in their ad system, so they’re getting better yield, effectively.

Getting back to the core question, it all depends on how that plays out. I am surprised that Google would pay $1.6 billion for it.

Something’s gone wacky when I find myself nodding my head through an interview of his.

Google paid $1.65B yesterday for YouTube. I’ve been thinking about it a bunch since then; starting to get stronger feelings about it.

First, I think that YouTube cashed out by flagrantly ignoring the rights of copyright holders, of the people who own the content that gets spread around. They used safe harbor laws to play within the letter of the law, but it was clear in a number of ways that they were never really doing much more than paying lip service. In my view, it’s wrong to build a business that does that, and cashing out is pretty undeserved. (Although, I will say that they executed like crazy. That’s a testament to them. A year and a half ago there were at least 50 “flickrs for video”. But they won.)

Second, I’m glad that video is becoming more viable on the web. It’s changed the way that I think about the web in the last year for sure. VideoEgg has let us put up lots fo videos of Sam which have really made a difference with his relationship with his grandparents & friends. iChat AV does the same thing. And the Democracy Player from Participatory Culture Foundation is a brilliant piece of work towards making video distribution truly more attainable by everyone.

Lastly, I’m pretty surprised Google made this purchase. I know their stock value makes stuff like this relatively inexpensive for them, but, truly, they haven’t been hammering away at Google Video for that long now. To cede the victory to YouTube after just a bit of time in the saddle doesn’t imply, to me, much faith in their ability to execute in this non-search market.

Anyway, I can’t get the development here out of my head for some reason — it’s really got me noodling. Can’t tell you why, exactly, except that it bothers me a bit.