On the surface it seems counterintuitive, but this post by Michi Kono makes a very compelling argument for YouTube’s $1.65B acquisition price in terms of the opportunity cost to Google of not owning the legal, most popular online video site.

Rather than trying to rehash the (very interesting) argument, I highly recommend reading the full post.


According to a CNN.com article:

February has not been kind to Google (GOOG). The fragile status of its YouTube unit was on display this week, as The Browser noted yesterday, when Viacom (VIA) announced that it would zap its videos over startup rival Joost. The National Hockey League, which had once embraced YouTube, is now apparently yanking videos from the site. And while it’s a single-market hit, we noticed that Norwegian media giant Schibsted announced that it was starting a local competitor to YouTube. Now comes word in today’s Wall Street Journal (subscription required) that the much vaunted deal between Google and CBS (CBS) seems to be falling apart.

I wouldn’t be surprised if CBS headed over to Joost soon as well.

If YouTube isn’t going to get distribution deals with the major studios, what will become of it? Well, basically, it’s going to be a website chock full of silly video clips. This begs the question: how long can the site stay around if it doesn’t even have quality content?

There doesn’t appear to be a viable way to reap profits from the majority of clips on the site. It goes back to basic marketing: companies want to create a certain brand image and there isn’t an easy way to do that on YouTube because of the fleeting popularity of clips and the diversity of content.

The classic example is that of a cat food company. If they advertised in all YouTube videos that included cats, then most of the views would be during videos about cats doing stupid things, cats getting hurt, or even cats dying. Do those movies help sell cat food? Probably not.

Obviously not all cases are like that and there are some instances where advertisers would be compelled to advertise on the site. However, from what YouTube has done so far, it doesn’t seem like it’s going to bring in the big bucks for Google. I have a feeling the YouTube acquisition is going to go down in history as something along the lines of BlueMountain.com. They gained massive popularity with their eCards, but could never figure out a great way to monetize them directly.

Short GOOG before it’s too late!