I still remember the loud howls of mockery when Google paid $1.65 billion for YouTube in 2006.
Mark Cuban said: "Only a moron would buy YouTube" (due to the potential legal liability) and "There is a reason they haven't yet gone public, they haven't sold. It's because they are going to be toasted" and "Would Google be crazy to buy Youtube. No doubt about it. Moronic would be an understatement of a lifetime."
It was almost universally ridiculed as being far too expensive. Analysis was done in every other article about how Google would never be able to pay for the acquisition with YouTube as a business.
Eight years later, it's more than clear that YouTube was a steal for Google at $1.65 billion. It's worth 10+ times that today.
> Eight years later, it's more than clear that YouTube was a steal for Google at $1.65 billion. It's worth 10+ times that today.
A 10x valuation still puts it at less than WhatsApp. If WhatsApp is worth $19b, then I'd wager that Youtube should be worth significantly more.
EDIT: I'll expand with a few dot points
- Youtube has an unimaginably huge content library
- Youtube has a solid monetization strategy
- Barrier to entry is significantly higher than a messaging app
- Youtube is even more synonymous with video streaming than WhatsApp is with messaging (anecdotally, my grandparents use Youtube. They don't even have smartphones, let alone WhatsApp).
WhatsApp is not worth $19 billion. That was a defense acquisition, not an RoI based acquisition. Facebook was protecting themselves from losing $19 billion or more of business to WhatsApp or WhatsApp in the hands of a competitor (like google).
I think this might be a bit of a single cause fallacy just like the other poster. Only Facebook knows why they payed what they did, but it was certainly more complex than just preventing Google from buying them.
The aggregate benefit of not having WhatsApp in a competitor's hand + the benefits to their core business of owning it + the lifetime profitability of WhatsApp + some other factors I'm probably forgetting <= a value of 19B in mostly Facebook stock.
The problem with having a monetization strategy is then people can see how much money you make. If you aren't making any money and not even trying to make money, the cash investors and buyers throw at you is Monopoly money printed on valuations and total active users.
Most startups would drop in valuation significantly if they made even one penny.
Not ironic, no. It's just the truth. Do you think WhatsApp or Instagram would be worth billions if they had to make money? With the absolute minuscule amount of profit they might make, their valuation would be worth maybe hundreds of thousands. Not billions.
The reason they're valued so highly isn't because of how much money they would make, but how much value they would bring to an already profitable company. Those valuations aren't based on the idea of profits, but on the idea of being bought out by a bigger player. If they started making money on their own, that value would drop massively.
I specifically went with 10+ just because beyond 10x I feel that it becomes increasingly difficult to be certain. I too believe it's greater than 10, but how much so ... I have no idea.
YouTube has revenue about ~20% less than Netflix, and is supposedly profitable according to articles from late 2013. Netflix is worth $33 billion, and has something like 57 million paying subscribers.
I believe the paying subscriber base, ie a superior business, gives Netflix a valuation edge, along with higher sales. Netflix is also rapidly building large international subscriber base that will be incredibly valuable over time, to go with their custom content (DareDevil, House of Cards, etc).
10x for YouTube would be $16.5 billion. YouTube isn't worth dramatically more than that range, the ceiling is clearly Netflix. So $15 - $25 billion is fair imo as a broad range.
What makes the barrier to entry higher for video than messaging? I would expect the opposite, by a good margin. For messaging, you get strong network effects, and it's useless unless the people you want to contact are signed up for the service. For video, you can upload anywhere, send or post the link, and they can watch it. Obviously that isn't actually happening, so I'm curious what I've missed. Or is it just because YouTube is pretty good?
There are network effects among video, although not as strong. How do people find what they want to watch? Both the search feature and "related videos" are important here.
How much of that is due to Google helping them out though? Could Google have launched a competitor for say, $0.5BN? So long another big player didn't buy them up and do well, we could easily be laughing how they wanted 1.6 and Google only needed a third of that to win.
But I suppose it doesn't matter in the big scheme of things. Why take the risk of someone buying YT and maybe getting more traction? A billion dollars doesn't matter enough, long term.
Or look at Groupon, which hasn't really done better than Google's $6BN offer - that didn't work out spectacularly for Groupon. Imagine if Google used a few billion to get people using its deals site. They could spend millions a day subsidizing deals for a year or two just to build traction. Yet they still offered 6BN.
Google did have a competitor called Google Video which was failing horrendously.
One of the huge downsides of Google Video from a consumer side was that videos took 3 - 5 days to upload as they were proactively being checked for copyright infringement. Google probably never could have gotten away with the laissez faire attitude towards copyright infringement that a young startup like Youtube which is why it made sense for them to buy it, regardless of the price.
Google has a lot of settlement free peering, so the bandwidth itself is going to be close to free, although the infrastructure to support it would not be. They also don't have to worry about being present in as many peering locations as most networks of comparable capacity, as their services aren't that latency sensitive, which also helps reduce their infrastructure costs.
I didn't think it was a good idea either. I though google would get bogged down by DMCA request and having to pay the big name content makers. I also though once it became only "legal" content everyone would just move on to the next video sharing site.
I find Mark Cuban's take back then — and now, he still believes YouTube is a loser as recently as 2015 — particularly funny because selling Broadcast.com to Yahoo for $5.7 billion is how he made his billions. YouTube is soaring whereas Yahoo's music and video offerings are almost non-existent. Maybe he was biased by how bad his own acquisition went for Yahoo.
I love your work, but I don't think Cuban was playing the hard-nosed businessman when he invested; rather he saw something in your idea that just might turn a profit.
I think it's rather the same with Google and YT. Google saw that video was going to be big on the Web but their Google Video experiment was suboptimal in implementation They saw that YT did it better and saw a future of integrating that technology with Google's other services, and it paid off.
If I remember correctly, it was a way for the investors to cash out on their Google value indirectly. The same VCs (Sequoia I think) that funded Google had funded Youtube.
It's been a long time so I may be remembering incorrectly. OK, I just looked up the deal and it was done in stock and not cash. Sequoia invested $9M and received $516M as part of the deal.
I did see an article saying Sequoia planned to sell their Youtube acquired Google shares in 2007 (before the lock-out period for employees expires) but I'm not sure if the sale went through.
Mark Cuban said: "Only a moron would buy YouTube" (due to the potential legal liability) and "There is a reason they haven't yet gone public, they haven't sold. It's because they are going to be toasted" and "Would Google be crazy to buy Youtube. No doubt about it. Moronic would be an understatement of a lifetime."
http://blogmaverick.com/2006/10/07/some-thoughts-on-youtube-...
It was almost universally ridiculed as being far too expensive. Analysis was done in every other article about how Google would never be able to pay for the acquisition with YouTube as a business.
Eight years later, it's more than clear that YouTube was a steal for Google at $1.65 billion. It's worth 10+ times that today.