A Whole Lot of Juice: Google, YouTube and That Revenue Thing Again

I was going to sit out Google/YouTube day in the blogosphere, beyond my cautionary post last night about using Google as a standard for wise spending.

But then I read Ed Burnette’s take over at ZD Net.  Lots of good stuff there, and it got me thinking about where things go from here.

A year and a half ago some guys started a video sharing web site.  One leaves to go back to school.  A year and a half later, Google, nervous about getting left behind in yet another space, ponies up $1.65 billion to buy it.  $1.65 billion in Google stock of course.

Tell me this story wouldn’t have fit right in back beneath Bubble 1.0.

Be that as it may, Google is the king of shared video- at least for the moment.

So what now?

There’s still MySpace lurking out there.  I don’t use MySpace and I think it’s silly for grownups to have MySpace pages.  But I am seemingly in the minority as far as that goes, and MySpace is certainly a player in the video, music and awful looking web pages race.

And there are all those other video sites that will get launched and/or funded based on the ripples of the Google/YouTube deal.  Give away money to one person and before you kow it everyone has their hand out.  Questionable acquisitions create the opportunity for endless questionable acquisitions.  In sum, buying out the competition doesn’t work when there’s a low barrier to entry.  Can anyone say Soapbox?

And, finally, there’s the bullseye that TDavid correctly notes is now on Google’s back.  It’s one thing for some kid to make a music video of his girlfriend dancing around on the beach and toss it up there like love graffiti on a fence.  But $1.65 billion is a lot of money.  And where there’s a lot of money, there will be a lot of people with their hands out demanding their share.  Content providers, lawyers and telecos will line up outside Google’s door.

Waiting, watching, suing, lobbying.

It’s a big, big win for the guys that made YouTube.  I’m sure that none of them can really believe this has happened.  They must feel like Jed Clampett every time they wake up and realize how rich they are.  Or maybe they feel like Marc Andreesen.

We won’t know for a while how good or bad it is for Google.  The content deals they’re making- and announcing the day before the acquisition- help calm some of the trouble that’s brewing over copyright issues.

Copyright lawsuits will come, you can count on that.  Once someone wins, then they’ll come in waves.  Some will be merely distractions, but taken as a whole, they could have a significant effect on YouTube’s business model.  If the ad buyers start getting nervous about placing ads on the back of pirated content, things could get very complicated.

Yes, the content deals reduce the universe of potential plaintiffs.

But deals require that the content provider get some revenue, which means that the almighty ad dollar is being spread even thinner over the Web 2.0 landscape.  At some point the ad flow will slow down, like an empty bottle of ketchup.  Empty.

And red.

What then?

Maybe there’s a secret plan.  Or maybe one will be dreamed up in the meantime. I hope so.  I enjoy YouTube.  I pay zero to use it, and I have never once clicked on an ad.

But it’s fun.  And free.  Web 2.0 users are very used to free.

This Google acquisition still feels backwards to me.  Like trying to give away more and more stuff in the name of more and more traffic.  Traffic that goes straight to the cost side of the ledger.

At some point they have to deal with the revenue side.  Ads all by themselves are a band aid at best and smoke and mirrors at worst.

Whether it’s search engines or videos, the content providers are ultimately going to demand most of the juice.  Apply a cap rate to $1.65 billion and you will quickly see that this deal assumes a whole lot of juice.

A whole lot of juice.

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