Kleiner Perkins has launched the iFund to back iPhone-based projects; Accel, Meritech, Founders’ Fund and Greylock have the fbFund to back Facebook-based projects.
I am a bit surprised that no one has a YouTube fund. If the premise is that the world we live is an ad-supported one, then as a sales guy I see the YouTube fund being able to provide far better returns than the FB and iPhone ones (especially when you consider that the FB platform is a double-edged sword and the iPhone isn’t exactly getting everyone excited).
Why has no VC launched a fund to back video projects surrounding YouTube?
In my opinion, monetizing YouTube is the single greatest business opportunity online right now:
- YouTube streams 1 out of 3 videos;
- YouTube is part of the most profitable online media company, Google;
- Online video advertising is the next high growth area;
- YouTube has hitherto not generated any meaningful revenue, so the upside is far more considerable;
In wireless, I agree that the iPhone might be the next big thing, but right now, its market share is tiny next to market leader Nokia, who has 40% of the world’s global market.
As per social networking, Facebook is not even #1, MySpace is. MySpace and Facebook are fantastic platforms but remain challenging to monetize, if the premise is that advertising is the monetization route.
But YouTube’s upside is becoming pretty crystal clear: over time, it will be a massive ecosystem when you consider that online video ads will grow 7x in the next 4 years and the network effects of YouTube gathering the world’s video content will continue to grow. Bear in mind, YouTube is both a promotional and a commercial platform, if the audiences and streams continue to grow, then it’s a matter of time before more - if not all - content owners want some kind of presence on the site. This is not a zero sum game: I am also very bullish on MySpace TV because I think the media DNA will serve it very well (full disclosure: WatchMojo.com has ever larger presences and reach on both MySpace TV and YouTube, along with a hundred other such sites).
Anyway, I am trying to think as to why there is no YouTube fund. Perhaps because invariably a YouTube fund would require that the fund invests in content, and VCs remain jittery about content plays (though that is changing more and more).
But if that’s not the reason, why is that?
1. It can’t be because Facebook is privately held; Apple, after all, is a massively profitable publicly traded firm sitting on $18B in cash.
2. Can’t be size: Facebook is much smaller than YouTube.
3. Can’t be market leadership: Nokia remains king of the mountain with 40% market share, yes the iPhone’s market share is pretty impressive, but its projected success in handheld devices remains a big potential concept and not really a fait accompli. Facebook is #2 to MySpace. Yet YouTube is clearly the #1 in its space.
4. Can’t be propensity to monetize: as a social networking site, Facebook is difficult to monetize, yet as the world’s largest video collection of video clips, YouTube represents easier ways to monetize.
5. Can’t be platform universality: iPhone will remain closed in that all wireless protocols and platforms are generally closed relative to their online peer; Facebook is also largely closed with regards to data portability.
6. Can’t be a lack of clarity in the prevailing model: We live in an ad-supported world, yet neither social networking nor wireless have any success in advertising relative to the Web; whereas YouTube’s likelihood to become a major monetization platform is pretty much a matter of time and execution.
Should Google launch one?
I’d love people’s take on this. Something seems off.
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March 16th, 2008 at 9:49 pm
Interesting question - too tired tonight to reply but will do so on monday.
March 16th, 2008 at 10:02 pm
Probably because YouTube is on the receiving end of ’scouts’ who make their rounds at various video events. Different model, but could still be viewed in the same category as the ‘funds’.
They’re out there, they just don’t play our game.
March 16th, 2008 at 10:08 pm
You see a lot of investments for projects that compete with YouTube, be it platforms, monetization networks, etc., but you would think that the smart money would be looking at making money off the massive community and content base on YouTube.
There seems to be a massive discrepancy between revenue and audience on YouTube and I am surprised more is not being done to make up that gap.
Come to think of it, why isn’t Google more proactive?
March 16th, 2008 at 10:10 pm
Not sure if a ‘fund’ is needed however, I agree there is plenty of room for innovation and financial upside.
Take a look at uvlayer (www.uvlayer.com) We are focused on the presentation layer as well as the social aspect of consuming video.
Today we are a desktop experience leveraging Adobe AIR. Our web product will be launched soon.
March 16th, 2008 at 10:49 pm
Michael, I agree that a YT-focused fund might be unnecessary, but then why bother with a FB or iPhone centric fund?
Ultimately, I can see a lot of companies (Google competitors) making investments that they can use as Trojan Horse’s to penetrate the site’s massive audience.
I am not sure how Google would react to those products, services or apps. If it was content investments, then Google/YouTube would welcome it, I presume… because it adds monetizable content.
When big media CEOs see that YT gets 1 out of 3 video streams and realize that the future of the Web will be far more video-centric than it is now, they’ll want a piece of the action and inevitably, they will think of how can they get a piece of the action on YouTube.
Of course, this last part is not a given, Hulu for example, was an investment by NBC and News Corp. to create something competing to YouTube… so time will tell.
Disclosure: WatchMojo.com’s content is also on Hulu.
March 16th, 2008 at 11:18 pm
Ashkan -
Why bother with the fbFund/iFund? Both Facebook and the iPhone created a product for the development community and declared they had a ‘developer platform’. (YouTube does continue to expand its APIs) To support that, they enlisted fantastic VC partners to spur activity. At a minimum, it was a very savvy marketing tactic for all involved.
..and yes, there will always be attention where the audience resides however, big media still owns the most valuable content.
March 17th, 2008 at 12:13 am
How does YouTube plan to share revenue with third parties on a meaningful scale? I think that’s a huge, unanswered question.
Facebook, for example, lets third party applications run ads from third party ad networks. YouTube, from my understanding, doesn’t let third party ad networks in.
March 17th, 2008 at 9:35 am
Eric, you have a good point but there is one difference:
FB allows third party apps that are not social networks, YT parent Google is at its core an ad network, so why would it want to let others profit from its subsidiary and create potential competitors.
Lastly, FB can at any time change the terms of use once the monetization takes off:
Right now, it’s saying you can have 100% of revenues, they do not stress that it’s usually 100% of $0.