Last week was an extremely lucky week for YouTube founders Steve Chen and Chad Hurley.
I say lucky because they finally found a way to make serious money from the project they started 18 months earlier and rid themselves of the responsibility of a site that falls under the category of problematic in the area of maintenance.
One of the best-kept secrets of one of the Internet's most popular Web sites was that it wasn't making any money, primarily because of the site's content: streaming video. There is simply no faster way to burn bandwidth, especially when you start piling on millions of users without charging subscription fees or selling significant advertising.
Two weeks ago YouTube was the definition of a money pit. The site was millions of dollars in venture capital money in the hole with no end in sight, and there were quite a few lawsuits pending for copyright infringement. With the concept of YouTube being user-uploaded video, there was also no end in sight to the litigation.
Steve Chen and Chad Hurley probably knew all of this going in. Build it and flip it was their business model. It's one that's picking up steam fast with sites like MySpace selling to News Corp for $580 million dollars.
The strategy goes like this:
You build a dynamic site that contains only user-created content. It helps if the content can be grouped or rated somehow by the users to give them a sense of interaction.
Then you get the 14-30 year old demographic on the site, and it spreads essentially like a virus once the ball starts rolling.
A few months down the line you off-load it to one of the large Internet companies like Microsoft, Google or Yahoo for exorbitant amounts of money. It's an incredibly long shot, but that's how you make $1.65 billion dollars in 18 months.
But as much as the founders of YouTube are breathing a sigh of relief upon the closing of the sale, the site was not a bad buy for Google. Google is a smart company and definitely knew what it was getting. Google's own video solution, Google Video, failed to compete with YouTube over the last 18 months, and Google is one of the most successful online advertising companies.
The name of the game at Google is automation. They've automated crawling the Internet to index pages as well as reliably ranking those pages by popularity and usefulness.
Their crowning achievement, however, is automating the sale of advertising.
Its very widely used AdWords and AdSense programs automate the advertisement sales and placement on a sliding scale depending on the amount of money advertisers are willing to pay for certain keywords. It's almost as if they've automated the general process of earning money. It's the perfect program for a site like YouTube that has an audience of 72 million people worldwide and an ever-increasing stable of content.
It also helps that Google is no stranger to copyright lawsuits. Its book search indexing project has been halted many times, but things like copyright infringement suits tend to be much easier to handle with a team of lawyers on board and boatloads of cash.
The $1.65 billion dollar question on everyone's mind right now is; Was YouTube really worth nearly 3 times as much as MySpace?
On that, only time will tell; but I'd say it's a decent bet that it was. -á
John Rozewicki is a junior telecommunications and Japanese major and writes 'Supreme Narcissism' for the Daily News. His views do not necessarily agree with those of the newspaper.
Write to John at jjrozewicki@notarrogant.com. -á
Read More
Three Air Jam teams take home the win
October 12, 2012Nineteen teams shimmied, shook and flipped for a sold out John R. Emens Auditorium on Thursday night during the 25th annual Air Jam.
Bill Clinton Speaks at North Central High School
October 12, 2012Former President's Speech Could Have Effect on State Senate Race
