
Let’s all laugh at my horrible 2006 post: “YouTube is not a real business” - doppp
http://calacanis.com/2015/04/30/lets-all-laugh-at-my-horrible-2006-post-youtube-is-not-a-real-business/
======
anthony_franco
Very few people know this, but I remember when MySpace almost killed YouTube.
Yes, MySpace.

YouTube blew up in popularity when everyone was adding videos to their MySpace
profiles. And suddenly one day MySpace decided to block all YouTube embeds
(they'd occasionally do this with other services as well.)

At the time YouTube was just a small startup without much muscle behind it.
All they could do is write a blog post pleading their users to contact MySpace
to allow their videos. And it worked, a week later MySpace lifted the ban and
it allowed YouTube to reach astronomical growth.

Edit: Here's a link to the blog post mentioned
[https://web.archive.org/web/20051223152529/http://youtube.co...](https://web.archive.org/web/20051223152529/http://youtube.com/blog)

~~~
hippich
lucky youtube, since myspace totally could instead "import" videos when
detecting embed.

~~~
pjc50
What do you mean? Bulk copyright infringement?

~~~
dublinben
As if any of the content on Youtube at that time was licensed? They owe all of
their early success to "bulk copyright infringement."

------
pja
It wasn’t just the lawsuits - IIRC YouTube the business was also bleeding
money at a terrifying rate thanks to infrastructure costs (servers, bandwidth)
even without the legal problems.

When Google took them on they were able to cut their costs to the bone by
using capacity on Google’s internal fibre network which had been bought up
cheap after the first dotcom crash & moving the data over to Google’s server
infrastructure.

Could anyone else have bought YouTube & managed to turn the business around
apart from Google? It seems to me that YouTube was one of those businesses
that had negative worth to all except a very few buyers. Did anyone else have
the infrastructure knowledge to do what Google was able to do at the time?

~~~
KaiserPro
On its own youtube doesn't really make any money. It's only recently that its
started to actually champion original content. (as in something approaching a
tv station. not just nut shots.)

[[http://www.quora.com/How-much-money-does-YouTube-
make](http://www.quora.com/How-much-money-does-YouTube-make)] (granted not the
best of sources)

But we need to separate "value" from viable business. Twitter, unless it
changes will go bankrupt. Its loosing around $160 million a /Quarter/

Value is a subjective thing, and can be manipulated to suit the needs of
others. Earnings are meant to be empiric. If twitter was any other company,
its stock would be worthless.

If we take a look at the buisness model of youtube: o Collect all video

o Flog adverts on those videos

o only take down copyright when notified.

o Sign deals to distribute promo material.

o Force small producers into exclusive deals with google at discount rates.

The signal to noise ration of profit making videos to not is terrible. I
suspect that 99% of all videos uploaded to youtube are useless and have less
than 100views. ([https://www.youtube.com/yt/press/en-
GB/statistics.html](https://www.youtube.com/yt/press/en-GB/statistics.html))

Without the backing of an extremely profitable company such as google, youtube
would have failed. I'd assume it would have been sued out of existence, and if
it didn't it'd have died under the infrastructure bills (they basically have
free bandwidth and CDN)

~~~
wampus
Sometimes I think of Youtube as a modern Library of Alexandria[1], a
repository of knowledge that could only exist through patronage and containing
a sizable amount of resources that are valuable in their uniqueness. A failed
YouTube would represent a loss of equally epic and/or mythical proportions.

[1]
[https://en.wikipedia.org/wiki/Library_of_Alexandria](https://en.wikipedia.org/wiki/Library_of_Alexandria)

~~~
kamakazizuru
I think you're mixing up what YouTube does and what Wikipedia does..

~~~
Zirro
YouTube holds a lot of unique content, documenting current times and events as
they were happening. Given YouTubes relatively short existence, this is not
obvious to everyone yet, but given just ten more years it will already start
to provide an interesting glimpse into the lives of the people of the past.
Imagine if we would have had the same insight about the people living in
earlier centuries. Instead of us having to read about them in books, they
could show it to us themselves.

I believe the Internet Archive
([https://www.archive.org](https://www.archive.org)) along with sources such
as YouTube, provided they survive, will be considered the most important to
get insights into the lives of the common people for future generations.

------
JacobAldridge
Nice _mea culpa_ , and a day after the "101 random and mutually exclusive ways
we wanted to fix Apple in 1997".

No doubt obervers, critics, and expert opinions have their place. But never
underestimate the man in the arena - especially if you _are_ the man or woman
in the arena.

------
mg1982
He says Google got 100x their investment since it's 'worth' that multiple of
what they paid. I don't think it's a valid argument since they paid real cash
and have only a notional value in return. It's hard to see anyone forking over
$100bn+ for youtube, and I doubt it's even made enough profit since they
bought it to cover what they paid originally paid. None of this is to
particularly criticise either the original post or its followup - it takes
courage to call it as you see it and then own up to your mistakes, but it's
always worth taking another pass at the figures to see if they really stack
up.

------
logicallee
>At the time I wrote that post, YouTube was not a real business; [...] The
fact that they were forced to sell a business that is now worth $100-150b for
$1.6b is a good indication for how close to the brink of destruction they
were.

I don't follow this point. How is selling something to Google for $1.6b an
indication of being on the brink of destruction? And if the point here is that
they were worth a discounted $100b then (so sold undervalued), how can that be
the brink of destruction either? Either way I don't follow the author's
reasoning here. It sounds like he's saying, "they were REALLY worth a
discounted ~$100b, but they were in such dire straits they had to sell for
1.6% of that." But that contradicts his point that it wasn't a 'real'
business.

So either way, I don't see how that sentence supports the point he is making.

~~~
adventured
Not to mention he missed by a mile on the valuation estimate.

YouTube isn't worth anywhere near $100b-$150b.

Netflix has a better business model, a track-record of profitability, more
revenue and nearly 60 million paying subscribers. It's worth $33 billion by
comparison (and is itself carrying a hyper valuation at 100-200 times earnings
typically). Netflix is the general ceiling on YouTube's valuation.

~~~
logicallee
Yes, I agree and had an objection to that number in my first edit. It's
obvious that YouTube isn't worth anywhere near $100B.

What made me remove it is that Google itself is valued at 371B, so the idea
that YouTube constitutes 26% of that valuation is something in the realm of
what someone could defend. (To compare with your numbers, YouTube.com is the
third-most visited site on the planet, after Google.com and Facebook.com
[1][2] and has "more than 1 billion users" [3] along with 50% monthly growth
according to that page. Since YouTube isn't in the same business as Netflix
(VOD), it's hard to use that as a cap on its valuation.)

The author's valuation of YouTube today is probably still inflated by a large
multiple. You suggest a cap on YouTube of 8.9% of Google's valuation ($33B),
perhaps that's fair, but it's hard to say as it's not an independent business.

[1] [http://www.alexa.com/topsites](http://www.alexa.com/topsites)

[2]
[http://en.wikipedia.org/wiki/List_of_most_popular_websites](http://en.wikipedia.org/wiki/List_of_most_popular_websites)

[3]
[https://www.youtube.com/yt/press/statistics.html](https://www.youtube.com/yt/press/statistics.html)

------
jroseattle
I think Jason is overstating Google's risk acceptance with the Youtube
acquisition.

"Napster, Kazaa, and countless other media sharing services had been
absolutely crushed..." did not happen by being out-litigated. They were _over-
litigated_ \-- they simply didn't have the capital resources to commit to the
legal challenges ahead of them.

Google didn't have that problem. Google was also the darling of Wall Street,
Sili Valley, tech culture, etc. which translated to a built-in victory in the
court of public opinion. There was certainly legal risk involved, but they had
a much more level playing field with the content producers.

~~~
nolok
Actually the two named example given, Napster and Kazaa, where out-litigated.

See
[http://en.wikipedia.org/wiki/Napster](http://en.wikipedia.org/wiki/Napster)

> Initially Napster lost the case in the District Court but then appealed to
> the U.S. Court of Appeals for the Ninth Circuit. Although it was clear that
> Napster could potentially have commercially significant non-infringing uses,
> the Ninth Circuit upheld the District Court's decision. Immediately after,
> the District Court commanded Napster to keep track of the activities of its
> network and to restrict access to infringing material when informed of that
> material's location. Napster wasn't able to comply and thus had to close
> down its service in July 2001

And [http://en.wikipedia.org/wiki/Kazaa](http://en.wikipedia.org/wiki/Kazaa)
(not quoting a particular paragraph in this one as the "lawsuit" section is
very long covering several countries, but it basically turns to "kazaa lost,
started settling with all plaintiffs and agreed to turn into yet another legal
music selling service clone").

~~~
jroseattle
Napster filed for bankruptcy in 2001 and blamed their "enormous legal fees" as
the primary cause. (Outside of, you know, having any actual revenue.) Kazaa
was in the same boat.

It's true, they did participate in some lawsuits, but they were going to be
overwhelmed by the sheer volume of legal activity (the very purpose of which
was to drain them of resources.) Appeals, filings in multiple districts, etc.

Back to Google/Youtube -- Google had the resources to sustain any sort of
legal onslaught by the RIAA. In fact, more so as those companies started to
see their profits decline steadily during the mid 2000s, and the prospect of
winning a protracted legal battle wasn't so certain. As a bully, it's much
easier to take the little kids' lunch money, but not so much fun when you
encounter a much bigger kid on the playground.

------
bachback
Very interesting. There is a very good interview with Chad about the wild
ride:
[https://www.youtube.com/watch?v=l56Hw5H-DEI](https://www.youtube.com/watch?v=l56Hw5H-DEI)
He talks quite a bit about their situation then.

Not many startups go from 0$ to 1.65B$ in 22 months.

Jason did not mention that Google itself was not a real business for a very
long time. Are there good writeups of how Google managed to crack the biggest
jackpot in business history with AdSense? Sure this experience taught them the
lesson which they applied here. In poker terms it's like a draw to the nuts.

~~~
jasode
>...of how Google managed to crack the biggest jackpot in business history
with AdSense?

To clarify, it was AdWords, not AdSense. AdWords (2000) was the original
monetization strategy and is still the #1 contributor to revenue and profits
today. AdSense (2003) came later.

It's easy to get AdWords and AdSense mixed up because both brandnames are
nondescriptive. Both AdWords & AdSense are based on "keywords" and both
"senses" or "tries to make sense of" page content to generate relevant ad
links.

------
ChuckMcM
Interesting, he wasn't wrong. And while Youtube is something of a 'fixture'
today we had Google telling us it still wasn't making any money (although it
had reached a point where it wasn't losing money either).

Youtube was birthed by business worlds version of Ceasarian Section, basically
Google funded the crap out of it invested in datacenters and putting Youtube
"pods" in bunches of Colocation facilities around the world etc for a property
that doesn't make any money. But what is next for the video service? What
business model works where it makes back its money? Does it try to be NetFlix?
HBO Go? Comcast?

Does Google start throwing money at "Youtube Studios" to bring original (and
with decent production values) content to the web? That is way outside their
current comfort zone.

How do they get people to watch and act on advertising they see on Youtube?
Because unless they can do that it has to be subcription, and how do you turn
the service that everyone knows is "free" into a subscription service?

That is why I don't think it was wrong in 2006 or in 2015 to wonder if YouTube
is a "real" business, I don't think we know yet.

~~~
cma
>Google funded the crap out of it invested in datacenters and putting Youtube
"pods" in bunches of Colocation facilities around the world etc for a property
that doesn't make any money.

When Google says YouTube doesn't make any money, they mean net of funding the
crap out of it.

------
kazinator
Meta dupe chain!

[https://news.ycombinator.com/item?id=9437641](https://news.ycombinator.com/item?id=9437641)

It's a HN submission about a blog post, and that blog post is is _about_ (a
reaction to) the previous submission, which is about a previous blog post by
the same blogger.

------
ddorian43
Is youtube profitable ? If search-engine-ad-$ go puff, does it stay up or go
down ?

~~~
Htsthbjig
"Is youtube profitable?" Oh yeah, very, it is eating traditional TV alive.

In Europe Governments want to intervene because it is taking so much money
from their tv companies, and sending good jobs and money abroad.

"If search-engine-ad-$ go puff, does it stay up or go down?"

And if a meteorite crashes in the Earth?, or a big megaexplossion on the
Universe sends cosmic rays to the planet?

If nothing like this happens, there will be markets that grow, like TV from
the Internet, and markets that recess, like traditional TVs. Early adopters
use to benefit from growth in their markets.

~~~
KaiserPro
Nope, its not profitable. Infact, like the sun its dilated the advertising
dollar, which means not only traditional TV mediums are loosing viewers to,
they are loosing value per advertising minute sold.

Its also not eating traditional TV. You don't sit down to watch a series on
youtube. There is no such thing as longform youtube. There are no profitable
30minute episodic videos on youtube that aren't pirated.

Content is king, and if you are producing shit content (cough 90% of the US TV
market) saturated with adverts and repetition, users don't turn to youtube,
they turn to netflix.

Netflix will eat all, Youtube is, and unless something changes (like no user
uploads) will always be a subsidised media charity store.

Yes, its cornered the MTV music video and nutshot compilation market. It has
enabled niche video makers for things like hobbies and such. but there is
literally no money in that either.

~~~
DanBC
> Its also not eating traditional TV. You don't sit down to watch a series on
> youtube. There is no such thing as longform youtube. There are no profitable
> 30minute episodic videos on youtube that aren't pirated.

Minecraft UHC (ultra hardcore) competitions are one example of longform
youtube series. Each episode is 20 to 30 minutes; you'd probably watch a
couple of different people.

I assume bigger channels make money from doing it.

I'm currently watching LapisDemon (associated with the now broken ZipKrowd
server) and Xisuma (Hermitcraft) playing as a team and I dip in and out of
other viewpoints.

This definitely reduces the amount of telly I watch.

~~~
wampus
Is that a good thing, though? I'm not a gamer, and there are times when I take
a break from YouTube and Reddit because it can be difficult to discover new
content without the results being dominated by gaming (especially Minecraft).

To an outsider performing random searches, it would seem our civilization is
based on games, guns, fingernail polish and BDSM.

~~~
DanBC
I make no judgement. Parent post said you don't get serial content on youtube,
and that's just false. You do.

If you like watching Minecraft it's great - there are thousands of hours on
YouTube.

FWIW Once you start watching something YT tends to recommend more of the same.

Watching this "World's smallest v12 engine" video leads me to more engine
engineering videos, no Minecraft in sight.
[https://www.youtube.com/watch?v=m3KdpzL3Hkk](https://www.youtube.com/watch?v=m3KdpzL3Hkk)

~~~
KaiserPro
>There are no profitable 30minute episodic

By episodic TV I mean drama, comedy, traditional TV format. Stuff that people
are prepared to pay for (see netflix et al.)

Broadcasting sports is super cheap, and has little value for anything other
than tier 1 events. (the expense is the rights management, something that
games broadcasting has yet to really encounter.) Also note that like I said,
its a niche thing, which limits its profitability. Niches always exist.

Also note the profitable. Channel4 in the UK used to deliver its catchup TV
via youtube. Despite the heavy promoting it failed to get more than a few
hundred thousand views across the entire library.

------
fx85ms
> “we’re sorry that’s not our problem — we’re a platform” approach. An
> approach that is now the standard for disruptive startups.

I truly agree with this on the "disruptive startups" part. Pretty nifty way to
avoid all sort of legal troubles, don't you think?

~~~
icebraining
Not particularly "nifty", it's the standard way for centuries. You don't get
to sue the Postal Service if someone sends an unlicensed copy of your work
through it.

------
skue
> The fact that they were forced to sell a business that is now worth
> $100-150b for $1.6b is a good indication for how close to the brink of
> destruction they were.

As a founder, I dream of having a company that close to the brink of
destruction.

------
mhomde
Everyone is right, sooner or later

------
amelius
Well, I think any experienced programmer could write a reasonable
approximation to youtube in a weekend in their basement. So from that point of
view, youtube is not really a business. However, as a "brand", it is of course
quite strong. It seems to me that we have to come to the sad conclusion that
building a business is more and more about building brands and locking in
customers (into your ecosystem/social network), and less and less about the
actual technology, which is ubiquitous after all.

~~~
ajdlinux
An experienced programmer can cobble together a moderately buggy, YouTube-
esque site which kind-of-works for whatever video formats that can be
converted by their local ffmpeg install, and allows a basic commenting system
and upvotes/downvotes, running on a handful of servers capable of storing a
few terabytes of data.

YouTube, on the other hand, stores so much video that they can't actually tell
you how much storage they have online at any one time. They have to process
300 hours of newly-uploaded video per minute, which they then have to serve up
to millions of simultaneous visitors through a network of data centres with
many thousands of servers spread around the world. On top of this, they have
to deal with analytics, advertising, account management, copyright compliance,
and everything else they have to do, on the huge scale on which they operate.

That's not a minor technical achievement.

~~~
jacquesm
Youtube did not start with the tech infrastructure they have today. They
started with that moderately buggy site which kind of worked for those formats
that their local ffmpeg could handle without comments and votes and could
maybe store a few terabytes of data.

Don't look at the situation today (or even 3 months post launch) to see what a
youtube like MVP could look like.

~~~
ajdlinux
Well of course that's correct, but it's wrong to take that and then make the
conclusion that the GP does - that building a technology business these days
doesn't actually involve much technology because everything's so ubiquitous.
Scaling anywhere past MVP requires extensive and deep technical development.
Any competent web dev might be able to reach something like YouTube's MVP, but
it takes a lot more than that to build anything from then on.

~~~
jacquesm
> Any competent web dev might be able to reach something like YouTube's MVP,
> but it takes a lot more than that to build anything from then on.

That goes for _all_ web start-ups. An MVP can be duct-taped together but for
major scaling you'll need to have all your ducks in a row. But that's fine and
totally expected. It would be entirely wrong to build your MVP using the tools
you'd use to scale through 6 orders of magnitude, your competitor would be
able to cycle much quicker in the first 6 months or so which is when you'll be
adapting to market, business model and opportunities suggested as feedback
from early adopters. If you're going to do that with a fine-tuned crazy
scalable solution you'll simply be dead.

