YouTube - Take the Money and Run

September 26th, 2006 | Categories: acquisitions, social media, strategy, video

If I was Chad Hurley… hmmm…

There comes a time in every business model when an exit strategy is necessary. YouTubeYouTube logo is at a key junction. With the current momentum and company hype, it would be a great time to a) exit via acquisition (good choice) or b) exit via IPO (less favourable choice). My thought is that if the company is unable to do so within the next 6 months, failure is certain.

Huh? Why? Well, there is really 3 reasons. First and foremost, the surge in traffic and rise to fame comes at a cost, literally. Video bandwidth costs are not cheap. We’re not talking text with the odd photo here. Users are streaming countless numbers of videos and rumour has it that the company bandwidth costs exceed $2 million per month and are climbing. Revenues are starting to take shape, but not fast enough. It is a numbers game at this point. Ad dollars (A) needs to exceed bandwidth costs (B), otherwise we see Chapter 11 (C). It’s a simple mathematical equation really.

The second reason YouTube is doomed: the record and motion picture industries. Obviously, YouTube has catapulted to such heights not based on family videos and little Joey breaking his ankle when he falls off his skateboard - but because of illegal, copyrighted material. The RIAA and motion picture industry are starting to mount their cases, and once all is in place, YouTube really has nothing to fall back on. The company is trying to make inroads with some of the large players, but at this point, it’s too little too late. And without copyrighted content, who wants to visit YouTube? It loses much of its luster.

Finally, we come to MySpace. Much of YouTube’s success has to be undoubtedly attributed to MySpace and a user’s ability to embed videos. This concept has created viral growth for YouTube through the distribution of branded video players. MySpace is now blocking the embedding of many external widgets and players. This will dampen growth and eliminate a valuable distribution channel.

Add these three factors together and I think it may be fair to say that YouTube should seek a take-over opportunity while the Internet community still values the video site as high as $2 billion. This seems a bit ridiculous to me, but then again, there was this one company called Skype…

One Comment

  1. Mapping The Web » GooTube? Or Yougle? Google to buy YouTube? Says:

    […] I have a funny feeling that Chad Hurley reads my blog. After all, he would be taking my advice from a few weeks ago […]

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