Lessons from the Google YouTube deal

There are several important messages and lessons from the Google - YouTube merger.

1. Paul Kedrosky points out that Google bought a company (YouTube) where they already have a product (Google Video). NIH - Not Invented Here is usually a big problem for a proud technology driven company. This tells me they care more about winning than pride.
2. Robert Scoble says sure Google will get sued, and they may lose a suit or two, but so what? They may lose a battle but win the war. Scoble points out that Microsoft did the same thing raking in billions of dollars and winning marketshare while being sued for anti-trust.
3. Om Malik says FaceBook is a big winner because Yahoo, Microsoft, Fox and the other big guys will scramble to make an acquisition of their own.
4. Mark Cuban still thinks Google is crazy for acquiring YouTube. Mark believes Google's deep pockets will be a big target for copyright lawsuits.

My Take? The jury is still out.

• Mergers take years to play out. Competition reacts and markets change.
• Could this deal fizzle like Broadcast.com into Yahoo, or Skype into eBay?
• Will the copyright lawyers start filing lawsuits?
• Will MySpace/Fox Interactive take on YouTube?

Building is cheaper than buying

Frankly, I am a little surprised that Google didn't put the time and effort into making Google Video a winner. Microsoft has come from behind many times and built a winning product starting from nothing.

Remember Netscape, Nintendo, iPod? Netscape invented the browser and dominated the market. Microsoft slowly built Internet Explorer into a leading browser. Nintendo was the leader in game boxes. Microsoft came out with the xBox and sustained losses for several years but ultimately built a very successful business. Microsoft is doing it again with Zune. iPod is the clear leader today, but Zune will change the market.

Microsoft has also done lots of acquisitions that turned into very successful products. Vermeer became FrontPage. ForeThought became PowerPoint. PlaceWare became LiveMeeting. There are lots of examples.

There are lots of ways to build a successful company. However, there are no guarantees with any approach. Google showed a lot of guts making this deal. Lets wait a year or two before declaring winners and losers.

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Comments

[Chris D]

I've been following YouTube for some time now and this is an interesting turn. The acquisition - while overpriced IMHO - solves many problems:

1) Google is already suitably built out on the back-end which solves the hosting/bandwidth of YouTube. They also can use their negotiation leverage to keep the bandwidth price as low as possible. The additional YouTube traffic is probably not as big of a problem compared to the scenario where YouTube gets bought out by - say - a major media company.

2) YouTube has not stuck me as a technology company. They are basically an integrator and an application UI designer/dev shop. Mind you, I think they did a good job on those two things, but I didn't see anything "deep" in their products. Google's big R&D braintrust will be complementary to YouTube application-layer strengths.

3) Obviously, Google has the advertising network/personnell in place that YouTube needs.

The jury is still out for me regarding Copyright Liabilities. I can imagine that several media companies will not take this acquisition lightly, so it'll be interesting to see if they take a more sharper approach.

One thing that I *do* hope is that all of this YouTube-mania in the press stops - for at least awhile. I can't help but think that there was some manipulation (directly or indirectly) of the press to get as much coverage as they did.

However, I think this is just the first round of a long and protracted phase of internet video related companies. Although there have been internet video companies since '98, we may have finally gotten over the "hump" and some serious traction will begin. I'm sure there will be yet another wave of VC dollars into this section now that there has been a *huge* exit (albeit stock only).

Let the games begin!

[Robert Scoble]

Microsoft will spend more than $1.6 billion trying to build a brand and community like what YouTube has.

Doing that is NOT cheap. Nor is it easy. Especially when you're the 10th player into the marketplace.

[Keith W]

I think you could have chosen better examples for products from Microsoft that have come from behind to win the day. For one, Nintendo had already been dethroned by Sony in the generation before the original XBOX. Furthermore, you may be privy to information the public is not, but I don't think the XBOX division has ever turned a profit. That doesn't strike me as being very successful, though Microsoft has acknowledged they know they are in a marathon instead of a sprint and they certainly have the financial resources to continue. Your comment may be correct in that they did take market share away from Nintendo this last generation, but they were still far outsold by the PS2. Lastly, I think it is too soon to speculate what Zune will and won't do to the market. I think a competitive offering is needed against the iPod, but I'm not sure Zune is it...yet. If additional features are added to better leverage the wi-fi capability, the Zune could be the must-have gadget MS wants it to be.

[James Governor]

my thoughts haven't changed. copyright is a side issue. Google had to respond because YouTube was going after their core market- B2B ad spend...
http://www.redmonk.com/jgovernor/archives/002307.html

meanwhile Fred Wilson nailed it- a key to success - the choice of Flash interface....