For the past year, I have been hearing reports about a) the insane number of people watching YouTube and b) the insane cost of running YouTube (specifically the cost of bandwidth).

About a week ago, I started to see articles about a possible purchase of YouTube by Google.

Yesterday, the articles confirming the purchase began (including a video of the two slacker founders on YT).

Now there is a wave of articles by and about the people who didn't buy YouTube telling everyone who will listen why it was stupid to purchase YouTube.

Hmmm...

garbage in; garbage out

I dont have a spreadsheet analysis proving that this was a smart move by Google but listening to many of the critics, I dont think they have one either. Or if they do, they arent measuring the right things.

As an idea, YouTube is a no-brainer. It's not that hard to build a website to shares videos, and other companies, including Google, have done so. Thus if your argument is a cost of replacement estimate, you would conclude that it is much cheaper to build your own YouTube than to buy theirs for $1.3B.

But that is the wrong argument. Google didnt buy a video sharing website; they bought the millions of eye-balls using a video sharing website. (In fact, google already had a video sharing website but consumers were too busy on YouTube to care much.)

another advertising channel

Who is the most valuable and most difficult to reach consumer demographic? People under 30. Are those consumers watching 60 Minutes or re-runs of Murder She Wrote on network TV? Not unless those shows are on YouTube.

YouTube is valuable because reaching the people who use it are valuable. In this way, buying YouTube is totally consistent with Google's business model. Google sells advertising and YT represents a big venue for advertising much like buying all the billboards in the country or buying rights to show commercials before movies in the theater. The value of YouTube is determined by how much incremental advertising Google can sell to YT users - information I am not privy to but Google must think is huge.

copyright policia

The other issue the critics keep raising is copyright. They argue that YT is worthless because the MPAA or RIAA will eventually sue them to death like they did to Napster. This is another lame argument.

First off, YT is not Napster. YT is not about sharing perfect digital copies of DVD movies or about streaming entire sitcoms. YT is about taking a scene from select material and sharing it or adding to it and then sharing it. This is very different from Napster and it is actually good for the copyright companies.

YT is free advertising! YT is fan-ware in the same way the mod-community made free games using the Half-Life engine which allowed Valve to continue selling HL for YEARS after the game itself was a has-been. The fans kept it alive and profitable. If Valve would have quashed the fan community they would have lost goodwill and good money.

That is the pro-argument for YT. The con argument is this: Do you want to be the company that puts YT out of business with lawsuits? When you take away YT and create tens of millions of angry consumers, how will your corporate brand be rewarded? Hint: you probably wont get a raise that year.

YT has reached a level of size that stopping it will be punished by consumers not rewarded. Most people see the YT material as creative and positive; not as stealing. It will be hard to convince people otherwise. Sure some material will be over the lines and YT will remove it but the site itself will not falter due to individual instances.

first-movers

The argument that I am not hearing is the most interesting to me. What does the YouTube case say about the 1st mover vs 2nd mover advantage?

Typical business case studies show that the first company blazes the trail and then gets killed by the second company. The first company does the heavy lifting to create a marketplace. The second company learns from their mistakes, doesnt need to spend on creating the market, and provides a better, cooler, newer product.

The iPod is a good example of this phenomenon as is Friendster. Friendster started the social networking craze but proceeded to get blown away by MySpace.

YT on the other hand contradicts this conventional thinking. Why? Was it luck or timing? Or is there something unique about buzz? YT got the users and generated the buzz and it worked.

Buzz is an extremely valuable commodity even if it is hard to fit into an Excel table.