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Home Broadband

YouTube Makes The Right Choice

by Dana Blankenhorn
October 9, 2006
in Broadband, business strategy, copyright, e-commerce, entertainment, Web/Tech
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Rumors on Friday were that Yahoo would buy YouTube for $1.6 billion.

In fact, Google just did, for $1.65 billion.

As I noted earlier Mark Cuban says the company is worthless but if a sale were inevitable (and it was) Google makes a lot more sense as a partner. Not just because the stock is worth more, and it’s heading higher while Yahoo is mainly treading water.

The fact is that Yahoo’s track record with acquisitions is abysmal. Have you heard lately from Broadcast.Com, the company Cuban sold to Yahoo for $6.7 billion? How about Geocities? Yoyodyne? Yahoo has become a Roach Motel for Internet companies — they check in but don’t check out.

Google’s track record is mixed. I’m not a fan of how they handled Blogger. Keyhole, which became Google Earth, has worked out much better.

And it should have been obvious Google was on top of the very concerns Cuban expressed over the weekend, announcing deals with both Warner and Sony BMG to allow the use of video on its network. This gives it a model for approaching the rest of the content industry.

Youtube_logo
That’s the final reason.

Yahoo is a Web site. Google is, thanks to its
dark fiber purchases and large number of operating units around the
world, a network. Having a presence in Brazil, or in Minneapolis, does
more than spread the Google wealth around. Decentralizing the company
means it has an incentive to build that dark fiber network, to light
that dark fiber network, and to become, not just a search company, but
an Internet Service Provider.

With a market cap of $130 billion, $1.6 billion in new stock represents
very little dilution, and very little risk to the existing
shareholders. In fact, Google’s shares rose 2.2% today, double the price of YouTube.

So, Mr. Cuban. Before buying YouTube Google made major deals with content providers that protect YouTube subscribers. And by acquiring YouTube, Google has yet-another motivation to light its fiber, to acquire more fiber, and to become a real network.

Not a bad day’s worth of business.

UPDATE: I had to end comments on this thread because of comment spam. It was the fault of no one here. Please continue the discussion wherever you see fit.

Tags: GoogleGoogle contentGoogle-YouTubeInternet acquisitionsInternet strategySony BMGWarner MusicYahooYouTube
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Comments 22

  1. Brad Hutchings says:
    17 years ago

    Which totally misses the point of Cuban’s criticism. Deals with major content providers could effectively drown out pirated content that is owned by the providers and mute the legal issue from them. What of independents? As Cuban says, “This is where the long tail comes back to bite you in the ass.”. If my indie film is uploaded to YouTube, I could sue. Along with tens of thousands of others.
    But it’s funny to hear you tout Google as ISP with high bandwidth services in tow. You think for a moment if they had that shoe on their foot that they wouldn’t look more favorably to packet prioritization? Certainly OK in my book, but not something I’d expect the Bob Barker crowd (“spay or neuter your Internet”) to welcome. Color me confused…

  2. Brad Hutchings says:
    17 years ago

    Which totally misses the point of Cuban’s criticism. Deals with major content providers could effectively drown out pirated content that is owned by the providers and mute the legal issue from them. What of independents? As Cuban says, “This is where the long tail comes back to bite you in the ass.”. If my indie film is uploaded to YouTube, I could sue. Along with tens of thousands of others.
    But it’s funny to hear you tout Google as ISP with high bandwidth services in tow. You think for a moment if they had that shoe on their foot that they wouldn’t look more favorably to packet prioritization? Certainly OK in my book, but not something I’d expect the Bob Barker crowd (“spay or neuter your Internet”) to welcome. Color me confused…

  3. Jesse Kopelman says:
    17 years ago

    Brad, I kind of agree with your post . . . all but the very end. Saying that Network Neutrality would neuter the Internet is classic double speak. Tiering/packet prioritization is a tool for increasing profitability, not improving service to the end user. Tell me one thing that could be accomplished via packet prioritization that couldn’t be accomplished by increasing overall network performance and capacity? I’m not even sure one costs more than the other. The money spent on upgrading network intelligence could just as easily be spent on a faster dumb network.
    Your calling Dana on his one-sided presentation would make a lot more sense if you didn’t do it yourself. Classic pot and kettle here . . .

  4. Jesse Kopelman says:
    17 years ago

    Brad, I kind of agree with your post . . . all but the very end. Saying that Network Neutrality would neuter the Internet is classic double speak. Tiering/packet prioritization is a tool for increasing profitability, not improving service to the end user. Tell me one thing that could be accomplished via packet prioritization that couldn’t be accomplished by increasing overall network performance and capacity? I’m not even sure one costs more than the other. The money spent on upgrading network intelligence could just as easily be spent on a faster dumb network.
    Your calling Dana on his one-sided presentation would make a lot more sense if you didn’t do it yourself. Classic pot and kettle here . . .

  5. Brad Hutchings says:
    17 years ago

    Zzzzzzzzz… medical monitoring? Or is it OK that grandpa’s heart monitor goes offline when the nerd down the street is downloading a movie that comes out next week? But that’s not even the relevant question because without QOS guarantees, grandpa’s bank account is drained in a high cost hospital or rest home. Home security is another app that could become much cheaper if it could be on the regular net with QOS guarantees rather than on dedicated (expensive) and low bandwidth lines. Anyway, if you’ve ever maintained a popular web site and had to provision bandwidth, you know that offloading high bandwidth offerings to lowest cost services is how you keep the whole thing working. Really Jesse, no offense, but I do not know how anyone could have experience dealing with this stuff and claim that more bandwidth is always the best solution to the problem.
    But my point was not to open a debate about net neutrality vs. freedom. My point was to say that if Dana thinks Google wants to become a super bandwidth ISP, they’re gonna have to change positions on net neutrality. Frankly, I think the YouTube acquisition is about being able to push big content rather than continue letting little people share their extreme home BBQ/skateboarding megafeatures. Mark Cuban is saying that it isn’t what it looks like, and he’s entirely right.

  6. Brad Hutchings says:
    17 years ago

    Zzzzzzzzz… medical monitoring? Or is it OK that grandpa’s heart monitor goes offline when the nerd down the street is downloading a movie that comes out next week? But that’s not even the relevant question because without QOS guarantees, grandpa’s bank account is drained in a high cost hospital or rest home. Home security is another app that could become much cheaper if it could be on the regular net with QOS guarantees rather than on dedicated (expensive) and low bandwidth lines. Anyway, if you’ve ever maintained a popular web site and had to provision bandwidth, you know that offloading high bandwidth offerings to lowest cost services is how you keep the whole thing working. Really Jesse, no offense, but I do not know how anyone could have experience dealing with this stuff and claim that more bandwidth is always the best solution to the problem.
    But my point was not to open a debate about net neutrality vs. freedom. My point was to say that if Dana thinks Google wants to become a super bandwidth ISP, they’re gonna have to change positions on net neutrality. Frankly, I think the YouTube acquisition is about being able to push big content rather than continue letting little people share their extreme home BBQ/skateboarding megafeatures. Mark Cuban is saying that it isn’t what it looks like, and he’s entirely right.

  7. cerebrocrat says:
    17 years ago

    I’m not a fan of how they handled Blogger.
    I’d be interested to hear more about this.

  8. cerebrocrat says:
    17 years ago

    I’m not a fan of how they handled Blogger.
    I’d be interested to hear more about this.

  9. Jesse Kopelman says:
    17 years ago

    I’m not claiming more bandwidth is the best technical solution to the problem, but the real world is not about the best technical solution. It is about the solution that the majority can best live with. WiFi, Ethernet, and x86 microprocessors are standards and we spend a lot of time working around their limitations because the vast majority of people feel comfortable with these standards. The vast majority of people feel comfortable working with the Internet the way it is. A network operator can support QOS sensitive applications by having a very fast dumb network, such that best effort is as good or better than the required QOS — the advocates of laissez fair uber alles like to ignore this incovenient fact. Fast dumb networks may not be the best for operators, but as a consumer I am concerned with what is best for me, not them.

  10. Jesse Kopelman says:
    17 years ago

    I’m not claiming more bandwidth is the best technical solution to the problem, but the real world is not about the best technical solution. It is about the solution that the majority can best live with. WiFi, Ethernet, and x86 microprocessors are standards and we spend a lot of time working around their limitations because the vast majority of people feel comfortable with these standards. The vast majority of people feel comfortable working with the Internet the way it is. A network operator can support QOS sensitive applications by having a very fast dumb network, such that best effort is as good or better than the required QOS — the advocates of laissez fair uber alles like to ignore this incovenient fact. Fast dumb networks may not be the best for operators, but as a consumer I am concerned with what is best for me, not them.

  11. Brad Hutchings says:
    17 years ago

    WiFi, Ethernet, and x86 are not standards that were decided by government fiat. They are “standards” that entrenched through efficiencies of scale. Net neutrality would have to be mandated and would preclude a network operator from offering a guaranteed QOS for a fee. Which precludes me as a consumer from purchasing such a service. So that doesn’t sound best for me, you know, as a consumer. Maybe you’d be for outlawing toll roads, private schools, and membership stores too? Come on Jesse, you’re way beyond being concerned that an ISP might hold up Google and eBay and into territory of trying to equalize outcomes. It’s unavoidable when you hold such an untenable position, but no less silly.

  12. Brad Hutchings says:
    17 years ago

    WiFi, Ethernet, and x86 are not standards that were decided by government fiat. They are “standards” that entrenched through efficiencies of scale. Net neutrality would have to be mandated and would preclude a network operator from offering a guaranteed QOS for a fee. Which precludes me as a consumer from purchasing such a service. So that doesn’t sound best for me, you know, as a consumer. Maybe you’d be for outlawing toll roads, private schools, and membership stores too? Come on Jesse, you’re way beyond being concerned that an ISP might hold up Google and eBay and into territory of trying to equalize outcomes. It’s unavoidable when you hold such an untenable position, but no less silly.

  13. Jesse Kopelman says:
    17 years ago

    Again, how does Net Neutrality preclude gauranted QOS? It just precludes the use of packet prioritization as the means of ensuring QOS. If you build a network fast enough that the QOS of best-effort is good enough, you don’t need packet prioritization. Yes, my arguement is somewhat silly (my actual view of Net Neutrality does not preclude tiering and packet prioritization or other technology solutions, but is instead based on rules requiring tranparent fee structures and preventing colusion). I am making a silly arguement merely to show that your own arguements against Net Neutrality are equally silly. They are based on the conceit that packet prioritization is the only way to ensure QOS when that is blatently not the case. You haven’t even made a case that the smarter routers required for packet prioritization are more economically efficient than faster switches in a dumb network. You like to make the claim that there is no proof that operators will do bad things with no Net Neutrality, my counter claim is that there is no proof that operators require tiering to remain profitable while offering acceptable QOS for real-time services. The truth about tiering is that it is a way for operators to increase profitability, not a requirement for new services.

  14. Jesse Kopelman says:
    17 years ago

    Again, how does Net Neutrality preclude gauranted QOS? It just precludes the use of packet prioritization as the means of ensuring QOS. If you build a network fast enough that the QOS of best-effort is good enough, you don’t need packet prioritization. Yes, my arguement is somewhat silly (my actual view of Net Neutrality does not preclude tiering and packet prioritization or other technology solutions, but is instead based on rules requiring tranparent fee structures and preventing colusion). I am making a silly arguement merely to show that your own arguements against Net Neutrality are equally silly. They are based on the conceit that packet prioritization is the only way to ensure QOS when that is blatently not the case. You haven’t even made a case that the smarter routers required for packet prioritization are more economically efficient than faster switches in a dumb network. You like to make the claim that there is no proof that operators will do bad things with no Net Neutrality, my counter claim is that there is no proof that operators require tiering to remain profitable while offering acceptable QOS for real-time services. The truth about tiering is that it is a way for operators to increase profitability, not a requirement for new services.

  15. Brad Hutchings says:
    17 years ago

    Jesse, You would be a great freeway engineer. Under your suggested course of managing increasing traffic flows, our highways would be 200 lanes wide to deal with 3 minutes of peak traffic per day, rather than shaping the traffic to spread out the peak over a greater time period while reducing the actual peak. Network traffic is very similar. Build it and it will fill up.

  16. Brad Hutchings says:
    17 years ago

    Jesse, You would be a great freeway engineer. Under your suggested course of managing increasing traffic flows, our highways would be 200 lanes wide to deal with 3 minutes of peak traffic per day, rather than shaping the traffic to spread out the peak over a greater time period while reducing the actual peak. Network traffic is very similar. Build it and it will fill up.

  17. tom says:
    17 years ago

    Brad, if you don’t believe that google is building an isp I suggest you go to their job listings on their website and search for ‘isp’.
    They won’t have an issue with net neutrality because they will give access away for free. Infact, they will be the driving force of net neutrality by virtue of the fact that when the isp is operational they have to peer with other networks in order to gain access to other ip blocks and give access to theirs. without open access to their network they don’t lost the ability to market/sell advertising to all those other eyeballs. think of larry and sergei’s strategy with the goog ipo, they were so adamant about giving everyone the right to buy shares of goog instead of just the Friends of Frank(Quattrone) and how they turned the tables on the IB’s because they’re actually quite the ‘do gooders’…..albeit a bit holier than thou of a position/belief.

  18. tom says:
    17 years ago

    Brad, if you don’t believe that google is building an isp I suggest you go to their job listings on their website and search for ‘isp’.
    They won’t have an issue with net neutrality because they will give access away for free. Infact, they will be the driving force of net neutrality by virtue of the fact that when the isp is operational they have to peer with other networks in order to gain access to other ip blocks and give access to theirs. without open access to their network they don’t lost the ability to market/sell advertising to all those other eyeballs. think of larry and sergei’s strategy with the goog ipo, they were so adamant about giving everyone the right to buy shares of goog instead of just the Friends of Frank(Quattrone) and how they turned the tables on the IB’s because they’re actually quite the ‘do gooders’…..albeit a bit holier than thou of a position/belief.

  19. Brad Hutchings says:
    17 years ago

    Um Tom… if you read what I wrote about it is that “if Google becomes an ISP, their support for net neutrality will necessarily diminish”. The first thing they’ll do is port 25 outbound blocking out of sheer necessity to keep their network from being an easy launch point for spammers. Slippery slope from there…
    But if they have spare capacity, they would be stupid, even negligent, not to sell it for routing bits that need to get wherever fast, whether it be their own YouTube video service or QOS dependent services like telephony. They aren’t going to maintain their astronomical P/E ratio just by “not being evil”.

  20. Brad Hutchings says:
    17 years ago

    Um Tom… if you read what I wrote about it is that “if Google becomes an ISP, their support for net neutrality will necessarily diminish”. The first thing they’ll do is port 25 outbound blocking out of sheer necessity to keep their network from being an easy launch point for spammers. Slippery slope from there…
    But if they have spare capacity, they would be stupid, even negligent, not to sell it for routing bits that need to get wherever fast, whether it be their own YouTube video service or QOS dependent services like telephony. They aren’t going to maintain their astronomical P/E ratio just by “not being evil”.

  21. tom says:
    17 years ago

    news flash: Google has a national backbone, has peering arrangements in multiple international geographies, has more capacity,has multiple class address space and has better talent than any other ISP out there. They are, by definition, already an ISP.

  22. tom says:
    17 years ago

    news flash: Google has a national backbone, has peering arrangements in multiple international geographies, has more capacity,has multiple class address space and has better talent than any other ISP out there. They are, by definition, already an ISP.

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