Too Early to Dub YouTube a Failure

Time looks at some of the biggest failures in tech. It includes YouTube (GOOG). Now this struck me as odd because a mere two years ago, Time dubbed You the Person of the Year, and by You it meant You on YouTube.

In fact, the list is actually compiled by Douglas A. McIntyre 24/7 Wall Street, a site I don’t read enough but which always impresses me when I do.

The list includes:

1) Microsoft (MSFT) Vista

2) Gateway

3) HD DVD

4) Vonage (VG)

5) YouTube

6) Sirius XM (SIRI)

7) Microsoft’s (MSFT) Zune

8) Palm (PALM)

9) Iridium

10) The Segway.

Some of these products and companies have come and gone (ie. bankrupt or acquired): Iridium, Gateway. A few are on their death bed: Sirius XM. Others technically remain to be determined (Palm, Vista).

But while overall this list is pretty accurate, I think lumping YouTube into the list is premature.

Back in November 2006 (so less than a couple of months after Google bought YouTube), I wrote a list on the Top 10 best Web acquisitions of all-time. I did not include YouTube’s sale to Google, not because it was good or bad, but because it was premature. I think that two years after that deal, putting it on a list of failures is akin to saying search is dead in 2000. After all, in 2000: Excite, Lycos, AltaVista, Microsoft and Yahoo! had all written off search as a viable stand-alone business and embraced portaldom. The one company that didn’t and stuck to their guns was Google.

I don’t think Google is the best company to be running YouTube (the entertainment destination) because Google isn’t as well versed in media as it should be to manage the world’s largest repository of video content (though Google is perfectly positioned to run YouTube, the world’s number 2 search destination).

However, it is premature to call YouTube a failure. In fact, I consider monetizing YouTube to be the greatest opportunity in business right now (any business, any region, any platform). Wireless? Speculative. China? Who says you can monetize anything there. YouTube: simple proposition and framework to make money.

But the company that has the best odds of doing that is the one who owns and controls it: Google.

Google paid $1.65B in stock to acquire YouTube, or 1% of its market cap. By doing so, it tucked away the number 2 search destination in its back pocket. How is that a failure?

Sure, it might be losing money now, but my gut says the company’s top line is growing at a healthy clip… and judging by its $20B cash hoard, while Google is willing to can irrelevant and unprofitable businesses, thinking long on YouTube will no doubt prove to be a smashing success (if only they just listened to me more, of course).

Note: YouTube is one of our distribution partners, and I have been known to tell them off in public or private channels on the odd occasion.

Comments

[ZenInvestor:]

Wow. You are out of touch! SIRI just had an investment by Liberty to the tune of 550MM, and most on your list are not 'dead', just not the 'market leader'. Is leading the market necessary to avoid 'death' in you opinion. Go back to reading articles, writing them is not your forte. Sorry.

May 17 09:41 AM

[tradeking13:]

YouTube should have a .org domain.

May 17 01:24 PM

[jrltexas1:]

Not only is Google breaking their own 'do no evil' motto by shutting down their Google Video and playing politics with TouTube by shutting down the most popular channels on YouTube because they disagree with the political opinions voiced there; they ARE evil by working directly with the NSA, and DHS in data mining law-abiding citizens searches etc without warrants or notifications. Google is simply a tool of the State at this point.

May 17 03:15 PM

[modelportfo...:]

Agree with you that Google's YouTube possibilities remain awesome. But the key to unlock its success has been more difficult to find that Google must have imagined. I think Google will ultimately succeed in monetizing YouTube but the "delay" is frustrating (as a shareholder).

May 17 06:26 PM

[connorport:]

How old is this article you read? I would say that it must be at least a few months old. Get an updated one and read up on SIRI. They may look dead in a down market but i never thought i would buy GE at $6 either. Would that make GE near death? Cmon' You may say they failed as a tech stock but as a media stock they are very much on their way. Don't know one media company who hasn't been where they are right now. I can't imagine $2.5 billion income with 3.5 billion in assets and 3.2 billion in debt being near death. Im in no way pumping the stock for people to buy but have done extensive research and blogging to find out a considerable amount of info. So far nearly every prediction thats been made has fell in line with the stock. We shall see where they fall on the list in six months to a year.

May 17 07:50 PM

[Alan von Al...:]

On May 17 03:15 PM jrltexas1 wrote:
> Google is simply a tool of the State at this point.

Shh. Think pleasant thoughts and love your neighbor, citizen.

May 18 05:48 AM

[square to t...:]

Extensive research and blogging? You really should better understand financials before you invest in distressed equities. Otherwise, you are going to get hurt.

You need to understand the difference between net income and revenue, the difference between operating earnings and net income, gross cash flow, free cash flow. Here is one small example to help you understand the lack of quality of earnings of SIRI:

You cited that SIRI had a net income of $2.5 B. From the WSJ, SIRI's 2008 revenue was about $1.7 B. So, I will assume that XM's revenue was close to $1 B, and that is how you came up with the $2.5 Billion number. But that is revenue, not income, let alone cash flow.

For 2008, I estimated that SIRI's adjusted Operating Income Before Taxes, Interest, D & A was a -$165 million. That's a big operating loss, my friend. The lack of quality of earnings is of major concern in that capital intensive business model. (My adjustments were as follows: I subtracted the $4.7 B impairment of goodwill from the merger and added back the D&A to the wsj op. net income).

Disclosure: no position in SIRI.


On May 17 07:50 PM connorport wrote:

> How old is this article you read? I would say that it must be at
> least a few months old. Get an updated one and read up on SIRI. They
> may look dead in a down market but i never thought i would buy GE
> at $6 either. Would that make GE near death? Cmon' You may say they
> failed as a tech stock but as a media stock they are very much on
> their way. Don't know one media company who hasn't been where they
> are right now. I can't imagine $2.5 billion income with 3.5 billion
> in assets and 3.2 billion in debt being near death. Im in no way
> pumping the stock for people to buy but have done extensive research
> and blogging to find out a considerable amount of info. So far nearly
> every prediction thats been made has fell in line with the stock.
> We shall see where they fall on the list in six months to a year.

May 18 10:35 AM

[Clarence th...:]

If you are tempted to discount YouTube, do yourself this favor first:
After the family goes to sleep tonight, tiptoe down to the family computer, and look at the "history" of sites visited over the past couple of weeks.

Ultimately, we as a culture have found a way to survive without the New York Times. Someday it will be a great story for your grandkids, who will be squirming to get away from you and get back to whatever they were watching on YouTube.

I understand that they have not been able to find a way to sustainably monetize this YouTube phenomenon. Consider the Ebay / Paypal conundrum... The law of unintended consequences swings both ways. Someone had to invent a way to pay for stuff from an internet garage sale, and the payment vehicle wound up more valuable than the entire garage sale supply chain.

When the solution for profiteering at YouTube is finally discovered (are you paying attention New York Times? This might be the answer...) we will all be sitting around saying "Damn, I could have thought of that....".

PS: YouTube winds up on lists with Windows (planned obsolescence) Vista only because B-School grads have to start somewhere. Ignore it.

May 18 02:42 PM