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Something similar was said when Google bought Youtube. That said, the price does seem steep.

by cvg 16y ago

mikeryan 16y ago
AFAIK any skepticism regarding the purchase of YouTube has been borne out. They have owned it for 4 years and so far it has never been profitable. So far Google has lost billions on YouTube. Unlike YouTube Groupon is actually profitable. (ergo apparently going for 4x YouTube's price tag) The question with Groupon will be their ability to maintain profits.
- Multiplayer 16y ago
  Google owns user generated video on the internets via the youtube acquisition. I think they paid a very, very small price for this.
  - reubenyeah 16y ago
    It's useless being the market leader if you can't make it profitable.
    - dasil003 16y ago
      Google is profitable though. Does every property they have need to be profitable? Does every engineer need to directly add at least $250,000 to the bottom line? If user-generated video is in any way tangentially important to the future of online advertising, then YouTube is worth more than their direct profit to Google.
  - gamble 16y ago
    If I started handing out dollar bills on a street corner, I'd have plenty of customers too. Why is YouTube so valuable? If there's a way to make real money on YouTube-style video, Google sure hasn't found it. This profitless 'strategic' expansion at all costs mentality is exactly the management failure that's leads to stock price stagnation in mature tech companies like Microsoft and Google.
    - d2viant 16y ago
      Interesting analogy. However, what if you're handing out a dollar bill to everyone as they enter your store, but then they're coming in and buying your product? That's more how I view the Google situation. They make these profitless attempts at getting people on their sites, which then generates massive amounts of advertising profits for them.
    - muhfuhkuh 16y ago
      This is now probably the gazillionth time I've used this old data point, but Amazon was in the hole for 6 years before they even turned out a profit, often losing hundreds of millions in a quarter alone. The "strategic expansion" can also be spun as "category killer" management. What large business in their right mind would try to compete with YouTube at this point? VCs would scoff at anyone wanting to do a video-sharing startup now. It's a loss leader in the way Bing is to Microsoft or Cyber Monday is to Amazon: It grabs eyeballs. Case in point, Susan Boyle's debut album was not heavily marketed in the US; and her performances were originally broadcast only in the UK but made famous through YouTube. The album went on to sell more than 6 million copies worldwide. That is reach and marketing (even when it's unintended). YouTube now strikes _actual_ marketing deals for its front page, and has actively stepped up inserted ads in a huge way this year. And, they've been very close to profitability this year. All in good time, I suppose.
      - gamble 16y ago
        Dozens of other companies followed Amazon's strategy and went bankrupt. Plus Amazon had an easy way to monetize traffic. Traffic alone isn't worth anything unless you can wring more money out of your visitors than it costs to service their requests. Google's existing advertising business works despite the low value of traffic because Google is collecting their cut from a huge swath of the Internet, and because the one kind of traffic they own - search - is the most directly linked to actually buying things, and thus the most valuable. Youtube is almost the opposite - expensive to service and totally unrelated to monetizable actions.
- d2viant 16y ago
  One thing you have to understand about Google is that they're a technology company at their core, unlike Microsoft and Apple which have turned into product companies. Google is very much focused on creating the best technology, which they then apply in support of their single source of revenue right now, which is advertising. So although YouTube does not generate revenue, perhaps that was never the goal. Perhaps YouTube provided them the opportunity to strengthen their technology that supports advertising. This can be said about many Google ventures right now including Android, Google Voice, and more. These other projects are unlikely to generate significant revenue in and of themselves, but so long as they draw people to the Google platform and the technology enhances their ability to generate more revenue for their core advertising, I think the company considers them a win.
- erikpukinskis 16y ago
  Are you serious? I think the whole "profit doesn't matter, only users" mantra is as stupid as anyone else, but you're way off here. That mantra is asinine not because YouTube (and Twitter, and Facebook a couple years ago) are actually worthless... it's asinine because they are crazy exceptions. YouTube gets about 2 billion views a day. Assuming each one of those views lasts about a minute, that's 1.4 million people watching at any given moment, 24 hours a day. The major TV networks get in the neighborhood of 6 million viewers during prime time... if they're winning. So YouTube has roughly the same daily attention on it as NBC does. Why aren't they profitable? a) They've had skyrocketing costs as they deal with explosive growth b) They've had to convince the world that this totally weird new thing is a viable advertising platform. That they've more or less solved those problems in 4 years and are close to profitable is pretty amazing to me, both as a developer and an entrepreneur. And the fact that their costs are going to go down (cost of bandwidth is cut in half every 18 months) while their profits are rising (advertising is advertising, and they're selling more and more), along with their enormous audience, suggests to me that they are, in fact worth a lot of money. Do you not think that you could easily sell YouTube today for 1.5b? To any of a number of media companies? I think it'd be an easier sell today than it was when Google bought them.
  - thafman 16y ago
    IIRC Google now values YouTube at ~5Bn, and at that price I feel that there are plenty of companies who would bite Google's hand off.
    - chollida1 16y ago
      > and at that price I feel that there are plenty of companies who would bite Google's hand off. What does this expression mean? Does that mean that companies would think this is too expensive? or companies would jump at the chance to buy YouTube for 5 Billion? It's not clear at all to me what you mean and I'm a native English speaker:)
      - nagrom 16y ago
        If someone offers you a sandwich then you take a bite. If you are particularly enthusiastic or quick to react, you take a really big bite and bite their hand off. It signals extreme enthusiasm and keenness. I hear it all the time (UK).
- cryptoz 16y ago
  > They have owned it for 4 years and so far it has never been profitable. So far Google has lost billions on YouTube. Can you cite this? I think you're wrong. I haven't seen any reports of YouTube's profitability since the Google purchase. There has been lots of speculation and discussion, but Google has never disclosed the information. YouTube was losing tons of money the day Google bought them. But since Google owns much of the fiber used to deliver the videos, they likely pay little to nothing for bandwidth. Also, they have ads now, in videos. Nobody but Google knows how much money those ads bring in.
  - mikeryan 16y ago
    You can Google "YouTube Profitability" and one of the top responses is Eric Schmidt saying YouTube is "close to profitability" from Sept of this year.
- cloudbrain 16y ago
  The other way to look at it is what if Google HAD NOT bought YouTube. What if it had gone to Microsoft? Or Comcast? Sometimes keeping something away from your competitors is enough of a reason.
reubenyeah 16y ago
YouTube, in my opinion, was a big financial mistake, it's never made a profit and was so expensive and has been so unprofitable for so long it's going to take a very long time to make a return on the investment for google.
- AlekseyKorzun 16y ago
  I assume you are an accountant for Google and know exactly how the ink looks on their finances right? No?
bryanlarsen 16y ago
Youtube makes Google loads of money. Sure it uses about $500 million worth of bandwidth a year, but Google pays nothing for that bandwidth because of peering agreements -- Google owns lots of fiber, which is a sunk cost. So the $240 million in revenue is pretty much all gravy. source: http://www.wired.com/epicenter/2009/10/youtube-bandwidth/ http://www.wired.com/epicenter/2009/10/youtube-bandwidth/

Something similar was said when Google bought Youtube. That said, the price does seem steep.

by cvg 16y ago

Something similar was said when Google bought Youtube. That said, the price does seem steep.

AFAIK any skepticism regarding the purchase of YouTube has been borne out. They have owned it for 4 years and so far it has never been profitable. So far Google has lost billions on YouTube. Unlike YouTube Groupon is actually profitable. (ergo apparently going for 4x YouTube's price tag) The question with Groupon will be their ability to maintain profits.

Multiplayer 16y ago
Google owns user generated video on the internets via the youtube acquisition. I think they paid a very, very small price for this.
- reubenyeah 16y ago
  It's useless being the market leader if you can't make it profitable.
  - dasil003 16y ago
    Google is profitable though. Does every property they have need to be profitable? Does every engineer need to directly add at least $250,000 to the bottom line? If user-generated video is in any way tangentially important to the future of online advertising, then YouTube is worth more than their direct profit to Google.
- gamble 16y ago
  If I started handing out dollar bills on a street corner, I'd have plenty of customers too. Why is YouTube so valuable? If there's a way to make real money on YouTube-style video, Google sure hasn't found it. This profitless 'strategic' expansion at all costs mentality is exactly the management failure that's leads to stock price stagnation in mature tech companies like Microsoft and Google.
  - d2viant 16y ago
    Interesting analogy. However, what if you're handing out a dollar bill to everyone as they enter your store, but then they're coming in and buying your product? That's more how I view the Google situation. They make these profitless attempts at getting people on their sites, which then generates massive amounts of advertising profits for them.
  - muhfuhkuh 16y ago
    This is now probably the gazillionth time I've used this old data point, but Amazon was in the hole for 6 years before they even turned out a profit, often losing hundreds of millions in a quarter alone. The "strategic expansion" can also be spun as "category killer" management. What large business in their right mind would try to compete with YouTube at this point? VCs would scoff at anyone wanting to do a video-sharing startup now. It's a loss leader in the way Bing is to Microsoft or Cyber Monday is to Amazon: It grabs eyeballs. Case in point, Susan Boyle's debut album was not heavily marketed in the US; and her performances were originally broadcast only in the UK but made famous through YouTube. The album went on to sell more than 6 million copies worldwide. That is reach and marketing (even when it's unintended). YouTube now strikes _actual_ marketing deals for its front page, and has actively stepped up inserted ads in a huge way this year. And, they've been very close to profitability this year. All in good time, I suppose.
    - gamble 16y ago
      Dozens of other companies followed Amazon's strategy and went bankrupt. Plus Amazon had an easy way to monetize traffic. Traffic alone isn't worth anything unless you can wring more money out of your visitors than it costs to service their requests. Google's existing advertising business works despite the low value of traffic because Google is collecting their cut from a huge swath of the Internet, and because the one kind of traffic they own - search - is the most directly linked to actually buying things, and thus the most valuable. Youtube is almost the opposite - expensive to service and totally unrelated to monetizable actions.
d2viant 16y ago
One thing you have to understand about Google is that they're a technology company at their core, unlike Microsoft and Apple which have turned into product companies. Google is very much focused on creating the best technology, which they then apply in support of their single source of revenue right now, which is advertising. So although YouTube does not generate revenue, perhaps that was never the goal. Perhaps YouTube provided them the opportunity to strengthen their technology that supports advertising. This can be said about many Google ventures right now including Android, Google Voice, and more. These other projects are unlikely to generate significant revenue in and of themselves, but so long as they draw people to the Google platform and the technology enhances their ability to generate more revenue for their core advertising, I think the company considers them a win.
erikpukinskis 16y ago
Are you serious? I think the whole "profit doesn't matter, only users" mantra is as stupid as anyone else, but you're way off here. That mantra is asinine not because YouTube (and Twitter, and Facebook a couple years ago) are actually worthless... it's asinine because they are crazy exceptions. YouTube gets about 2 billion views a day. Assuming each one of those views lasts about a minute, that's 1.4 million people watching at any given moment, 24 hours a day. The major TV networks get in the neighborhood of 6 million viewers during prime time... if they're winning. So YouTube has roughly the same daily attention on it as NBC does. Why aren't they profitable? a) They've had skyrocketing costs as they deal with explosive growth b) They've had to convince the world that this totally weird new thing is a viable advertising platform. That they've more or less solved those problems in 4 years and are close to profitable is pretty amazing to me, both as a developer and an entrepreneur. And the fact that their costs are going to go down (cost of bandwidth is cut in half every 18 months) while their profits are rising (advertising is advertising, and they're selling more and more), along with their enormous audience, suggests to me that they are, in fact worth a lot of money. Do you not think that you could easily sell YouTube today for 1.5b? To any of a number of media companies? I think it'd be an easier sell today than it was when Google bought them.
- thafman 16y ago
  IIRC Google now values YouTube at ~5Bn, and at that price I feel that there are plenty of companies who would bite Google's hand off.
  - chollida1 16y ago
    > and at that price I feel that there are plenty of companies who would bite Google's hand off. What does this expression mean? Does that mean that companies would think this is too expensive? or companies would jump at the chance to buy YouTube for 5 Billion? It's not clear at all to me what you mean and I'm a native English speaker:)
    - nagrom 16y ago
      If someone offers you a sandwich then you take a bite. If you are particularly enthusiastic or quick to react, you take a really big bite and bite their hand off. It signals extreme enthusiasm and keenness. I hear it all the time (UK).
cryptoz 16y ago
> They have owned it for 4 years and so far it has never been profitable. So far Google has lost billions on YouTube. Can you cite this? I think you're wrong. I haven't seen any reports of YouTube's profitability since the Google purchase. There has been lots of speculation and discussion, but Google has never disclosed the information. YouTube was losing tons of money the day Google bought them. But since Google owns much of the fiber used to deliver the videos, they likely pay little to nothing for bandwidth. Also, they have ads now, in videos. Nobody but Google knows how much money those ads bring in.
- mikeryan 16y ago
  You can Google "YouTube Profitability" and one of the top responses is Eric Schmidt saying YouTube is "close to profitability" from Sept of this year.
cloudbrain 16y ago
The other way to look at it is what if Google HAD NOT bought YouTube. What if it had gone to Microsoft? Or Comcast? Sometimes keeping something away from your competitors is enough of a reason.

reubenyeah 16y ago

YouTube, in my opinion, was a big financial mistake, it's never made a profit and was so expensive and has been so unprofitable for so long it's going to take a very long time to make a return on the investment for google.

AlekseyKorzun 16y ago
I assume you are an accountant for Google and know exactly how the ink looks on their finances right? No?

bryanlarsen 16y ago

Youtube makes Google loads of money. Sure it uses about $500 million worth of bandwidth a year, but Google pays nothing for that bandwidth because of peering agreements -- Google owns lots of fiber, which is a sunk cost. So the $240 million in revenue is pretty much all gravy. source: http://www.wired.com/epicenter/2009/10/youtube-bandwidth/ http://www.wired.com/epicenter/2009/10/youtube-bandwidth/