About this blog

News and analysis of developments in the enterprise communication industry and market with primary focus on Europe.

The author aims to tap into ideas, insights and thoughts of the readers to get varied perspectives.

Views expressed in this blog are solely the author's opinion and in no way reflect those of his employer.

Wednesday, October 11, 2006

What does Google get from Youtube?

News talks of the $1.6 billion acquisition of YouTube by Google. In fine print there is mention that YouTube will remain a separate entity. I want to understand how is YouTube valued at Google's bid price.

I use YouTube. It offers fantastic service. Its simple to use and offers powerful tools. It offers a very strong value proposition around video sharing. And I had to look hard for their business model. Its a clever concept.

However when I compare with Google Video service, I don't see how You Tube can derive such large price out of its rival. I don't see anything that Google Video couldn't copy/substitute at a much lower cost. Additionally, such a development would not require Google to undertake the acquisition pains.

News suggest that YouTube has a larger user base. True, however YouTube offers viewers access to copyrighted video material mostly without permission thus offer a platform to increase piracy. I don't blame YouTube for that. However, Google with its clean image will have to develop checks and measures to stop the proliferation of video piracy. I fear that as Google tries to stop piracy in YouTube, it will loose the visitors and therefore a source of revenue. Also such a step will reduce the valuation of the business. It does not stop there. Creating a YouTube clone won't be much of a challenge. There are a number of them already. The visitors who move away from YouTube will choose to watch alternative video channels. My argument is to emphasise the point that Google Video has a lesser number of visitors not because of its content or lack of visibility. Its because of something that Google cannot do with its current public image.

In conclusion I think that YouTube acquisition is a costly decision where ROI calculations didnot factor in the potential threat of loosing visitors in wake of quality control and copyright protection.

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