YouTube’s Missing Link

I haven’t kept up with all the commentary on the Google/YouTube deal, so I’m posting blind. What’s worse, I’m merely posting an endorsement of a comment by someone else — a student in my IP Seminar.

The comment, which I think gets something important about the deal, is basically this:

YouTube isn’t about YouTube content. It isn’t about YouTube technology. For lack of a better analogy, YouTube is about a massive, dynamic, evanescent customer list. Google has “bought” a group of people — the population of people that decided that YouTube is a cool place to find stuff and to post stuff, and a group of people that will disappear like the wind if they sense that Google is doing anything to screen or limit any of what they think they should find at YouTube.

If that’s right, then how in the world is this group of people worth more than a billion dollars — when almost anything that conventional wisdom believes will happen to YouTube (that is, the assumption that Google has to clamp down on copyright infringement) means that this group is going to start to lose what little integrity it has now, and may, in the not so distant future, fade away?

I haven’t had time to figure out what this means. But something else, and something big, is going on.

7 thoughts on “YouTube’s Missing Link

  1. Dennis — Hmmm. Make me an offer! But remember that the proceeds get split three ways. Mike

  2. Michael,

    Google didn’t pay a dime for YouTube. Its market capitalization increased more than $1.65 billion within a day of the announcement. So it made money by buying YouTube. Brilliant!

    I am writing a column right now about how Google is actually making a good copyright bet on YouTube! Brilliant!

  3. Mike,

    As you suggest, a list qua list doesn’t do it. You’ve got to believe they’re not going to go away — and you may even have to believe that you’ve got sufficient critical mass that you are going to acquire almost all of the growth that’s going to come into the space. Think eBay…. Who uses Yahoo! Auctions?… Nobody. Nobody lists there; nobody browses there. This is a vicious (virtuous if you own EBAY!) circle.

    The point is that Google has to have made a calculation like this. What I wonder is: In their (ahem) “infinite wisdom,” is it something inherent to a “social” (as in Flickr & del.icio.us – Y! properties, of course) video sharing site that makes this so — or is it their ownership of this property, and their ability to roll it into their Gmail / Calendar / Docs / Groups / Picasa suite they’re banking on?(??…)

    Matthew

  4. Mike,

    As you suggest, a list qua list doesn’t do it. You’ve got to believe that you’re going to be able to keep these folks happy — and you may even have to believe, in this case, that you’re going to be more successful than your competitors at keeping new folks happy indefinitely.

    Think eBay. Who uses Yahoo! Auctions? Nobody. Nobody lists there… because nobody browses there… because nobody lists there. A vicious (virtuous if you own EBAY!) cycle.

    Google must be thinking they’re onto something like this – as they seem to be in search (for different reasons than eBay). What I wonder is whether they think this is the case because of something inherent to “social” (as in Flickr and del.icio.us – both Yahoo! properties, of course) video sharing, or do they think that this will accrue to the property once it’s folded into their search / Gmail / Calendar / Docs / Groups hegemony?

    Matthew

  5. Cf. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=917785

    Coordination and Lock-In: Competition with Switching Costs and Network Effects

    JOSEPH FARRELL
    University of California, Berkeley – Department of Economics
    PAUL KLEMPERER
    University of Oxford – Department of Economics; Centre for Economic Policy Research (CEPR) May 2006

    Abstract:
    Switching costs and network effects bind customers to vendors if products are incompatible, locking customers or even markets in to early choices. Lock-in hinders customers from changing suppliers in response to (predictable or unpredictable) changes in effciency, and gives vendors lucrative ex post market power-over the same buyer in the case of switching costs (or brand loyalty), or over others with network effects.

    etc….

  6. This article suggests that there are very low barriers to entry in social networking:
    http://www.washingtonpost.com/wp-dyn/content/article/2006/10/28/AR2006102800803_pf.html

    However, I have a sense that YouTube may be a bit more durable, because they’ve been getting their users to do the work of categorizing and organizing the videos (via tagging, favorites, subscriptions, etc). I think there are some network effects going on there…it may be very hard for a rival site to build up such a substantial categorizing effort.

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