Yesterday, when news of Google’s $1.65 billion acquisition of YouTube was made official, friends and family were quick to ask me what it meant for our company, WatchMojo.com. To most people outside of the Web industry, it might be easy to lump all Internet companies together, let alone online video companies. But the video segment on the Web entails many different, far-flung companies. I am sure different people have different breakdowns, but roughly, online companies tend to fall under the following categories:
1 - content management system (CMS) platform technology companies (Brightcove)
2 - advertising creation and management companies (Klipmart)
3 - content aggregation and distribution (ROO)
4 - video file hosting and sharing (YouTube)
5 - video content editing (Adobe’s Macromedia/Flash)
6 - content producers (Our own WatchMojo.com)
7 - content delivery network, or CDNs (Limelight, Akamai)
Indeed, online video has been growing quite a bit. Online advertising estimates have been snowballing, in just a few months, estimated projections for online ads grew from $1 billion by 2009 to $2.3 billion in 2010.
Yesterday, the largest video file sharing site Youtube was scooped up for a cool $1.65 billion. This a [presumably] profitless company, less than 2 years old, with 67 employees that went from 0 to $1.65 billion in 18 months!
I give them all of the credit in the world, but the bigger question is:
What Does It Say for YouTube’s competitors?
Note that when friends and family asked me what it directly meant for WatchMojo.com, I was not lying when I said ”not much.” I did not get into the nuances, but the fact is: YouTube’s acquisition had 51% to do with social networking and 49% with video. All right, it could be 51% video and 49% social networking, but you get the idea: Google was - relaive to YouTube - weak in one and non-existent in the other.
With analysts coming out and calling for more professionally-made videos and content always being in demand, I could not help but find myself thinking more about YouTube’s competition than about our company; call me an altruistic idealistic SOB I guess.
What About the Competition?
There are nearly 200 file sharing sites. For most of them, this must suck in some ways. I’ll explain why.
Indeed, at first glance, people expect Google’s competitors to rush in and buy YouTube’s competitors.
Don’t count on it.
The problem with that hypothesis is that Google did not acquire YouTube for the technology. It bought YouTube for the traffic and mainly, for the momentum. Google is not a top traffic player in video despite an equal or superior technology.
YouTube is Now Unstoppable
So, since the largest online video file sharing property is already scooped up, it’s not like the second (distant) player holds much value, now does it? It might, for its technology. But the bargaining power of that company might have gone down, not up, because underneath Google, YouTube is unstoppable. Before the Google deal, I believed that it was possible for someone to catch up YouTube, someone being Google perhaps…
Who Wants to Be #3 in Online Video?
Also, one of the most competitive competitors in this context is Google partner Fox Interactive Media’s MySpace. Fueled by Rupert Murdoch’s ambitions and billions, FIM decided to stop heavily promoting YouTube and push MySpace Video, properrling it atop the online video space. The problem for the other video file sharing sites is that there already is a #1 and #2 in online video: YouTube/Google and MySpace Video. What did Jack Welch say about being #3 in a market? Oh, that’s right, do not bother.
Yahoo!: Off The Radar
Yahoo! has its own video platform and is making small bets in online video, but as a media company it might not really need or welcome its “anything goes” file sharing service like YouTube. Yahoo! will slowly but surely benefit from online video. In fact, as a media company with advertising relationships in place with the largest advertisers and ad agencies, the irony of it all is that Yahoo! stands to benefit from the boom in online ads whereas under their current denominations, neither YouTube or Google does/can. Even MySpace, who does sell video advertising, cannot fully monetize its inventory for advertisers tend to balk at user generated content…
What’s That Loud Sucking Noise?
But there is more to suggest that this deal might be bad news for YouTube competitors like Veoh, Revver and the 200 others?
Remember we’re not talking now about product benefits and user experience. I think that all of the video platform companies have something worth talking about, but if I am a VC who invested in a service that sought to displace YouTube, seeing YouTube being acquired by Google for $1.65 billion stirs up mixed feelings and represents a double-edged sword.
Immediately, a VC might be happy thinking that his or her investment will see a profitable exit, but on the flip side, think of what happened to the stock prices of most of Google’s competitors after Google’s IPO?
A major sucking noise! That’s what happened… for better or worse, either as a result of correlation or causality or simply, coincidence, once high-flyers Infospace, Ask Jeeves (subsequently acquired by IACI), and even Yahoo! all saw shareholders begin to pass on their stocks and opt for Google.
The same could technically happen to YouTube’s competitors? How do they expect to compete in the marketplace with a YouTube/Google competitor? Some time ago I wrote that Google was well on its way to becoming the 21st century’s version of a monopoly. I did not say that in a bad way, rather, I pointed out that search’s position and Google’s leadership position in search make Google far more important than MSFT or anyone else in this century.
Yesterday’s acquisition only bolster Google’s dominance in all thing online. What I suspect will happen is that all of the great file sharing platforms that play off social networking will find it harder to gain traction in their respective markets.
Disclaimer: Of the companies mentioned, at the time of writing, I own shares in INSP and YHOO.
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Posted By: Ashkan Karbasfrooshan | Oct 10th
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October 10th, 2006 at 11:10 pm
I believe this event is a tipping point that will start a cascade of mergers and shake outs. This is because all of the companies cannot exist under the same model competing for the same eyeballs. One of the star companies I see being picked up next is Revver. This is because Revver has the best potential for revenue in the future.
But once the dust settles, I think video uploading sites will become less of a focus. Instead video aggregator sites will dominate the internet; specifically, sites that do not host content. This is because they will remain impartial to the site where the video is uploaded. Moreover, they will be very efficient and cost effective.
Some of the sites I think will dominate the next wave of video on the web are VideoBomb, Viral Video Chart, and KungFuGrip. I represent KungFuGrip. Our philosophy is to aggregate creative entertainment across the web using a Digg.com model.
October 11th, 2006 at 2:26 pm
[…] To see why and how YouTube/Google and MySpace have already cornered the video file sharing space and what it means for incumbents, click here. […]
October 11th, 2006 at 9:12 pm
Not sure who makes the most sense of being acuqired next, but can’t believe that it is Revver. Their model is simply a gimmick. Anyone of the aggregators can do it, and the idea is anything but original.
My bet is on Veoh or other P2P aggregators. At least they have something significan to offer, technology that is difficult to build and a user base as an aggegator. Veoh is basically a YouTube clone with P2P backend. Makes a lot of sense to me. Others that make sense are Guba with NNTP aggregation and Bit Torrent with P2P.
Just my $ 0.02.
October 18th, 2006 at 10:45 am
[…] In theory it can happen again. Then again, iFilm was sold to Viacom for $49 million, and it was large, but it had nowhere near the traction that YouTube did. Google paid $1.65 billion for YouTube, ironically, I would estimate that iFilm’s revenues per user were far larger than YouTube’s. Mainly, I doubt this will happen because Google has enough eggs to hatch on its own not to meddle too much with YouTube, and on the flip side, YouTube can tap into Google’s traffic to grow faster than ever. To find out why we think it would suck to be a YouTube competitor after the deal, click this. […]
November 1st, 2006 at 12:47 pm
[…] Also, I do agree that the YouTube/Google will make things very hard for those playing second fiddle in the online video sharing social networking space. Read my previous post here. […]
November 8th, 2006 at 2:17 pm
[…] Earlier this year, I saw a bubble pocket in video file sharing sites. Google buying YouTube popped (read corrected) that segment. If a VC wants to invest a video file sharing site right now, mark my words: they’re not demonstrating “smart” money traits. Again, they know something I don’t but Google + YouTube will make it hard for others to have any traction in the space. The other, existing players in video file sharing will have to adapt. So the market auto-corrected itself. Will there be more file sharing sites getting money? Of course. But less and less and less. […]