Why Google will get even wealthier after buying YouTube
I’ve been thinking about Google’s buyout of YouTube for $1.65 billion. At first glance, that seems like a ridiculous amount of money for a free site that a semi-talented programmer could clone in a weekend.
I had looked into creating a similar site earlier this year, and could have had it developed for $5-10k. And this includes the $2,500 licensing fee to use the On2 VP6 codec for converting the uploaded videos to Flash 8. (For the record, I still plan to do such a site, but with a focus on a niche or group of niches.)
OK - so it’s obvious Google’s not buying the technology.
What are they buying then?
Eyeballs.
From the YouTube Fact Sheet...
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"YouTube is currently serving 100 million videos per day, with more than 65,000 videos being uploaded daily. According to Hitwise, YouTube videos account for 60 percent of all videos watched online and people are spending an average of 17 minutes per session on the site. According to Nielsen NetRatings, YouTube has nearly 20M unique users per month… We continue to grow exponentially month-to-month, so check back in for the latest metrics."
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I recently read an article written in 1994 that stated Google earns a net profit on average of $.10 for every click on one of their pay-per-click ads. Ad rates have gone up considerably since then, so I’d imagine this figure is actually a low-end estimate of what they earn today.
It’s only a matter of time before Google starts displaying ads at the end of YouTube videos. 100 million videos per day = potential for an additional 100 million ad views per day - served to a very captive audience.
What if 1 in 10 viewers click on that ad? At $.10 per click, that’s an extra million dollars per day that gets added to Google’s burgeoning coffers.
At $.20 per click, you’re looking at three quarters of a billion dollars per year, which would pay for the YouTube acquisition within 2 years.
And you can expect to see the Google Toolbar promoted heavily to the 20 million unique visitors who visit YouTube each month. Searches via the browser toolbar Google result in more Google search result pages being shown, and more ads being clicked on.
Of course, there’s that annoying little thing called “copyright law” that could throw a wrench in their plans. But with an estimated $12-$14 billion in cash, Google certainly is in a position to fight the inevitable lawsuits that will find their way to Mountain View, CA.
Even if it cost them a $100 million a year, every year, forever - they still stand to see a nice yearly return on their YT investment.
And if they didn’t buy the video site, somebody else would have - and would be serving non-Google ads to that massive audience.
So maybe, Google isn’t as crazy and stupid as so many others are claiming.
Maybe.