I’ve had several people ask me recently why on earth Google would want to buy YouTube, considering the fact that 1) they already have an online video service (Google Video) and 2) people keep going on about how YouTube is breaking copyright law, several hundred thousand times over. There were many specific questions, some pondering, some interesting and others lacking in point: who on earth would want to take on a company that is perceived to be in so much trouble with the major media conglomerates? Will Google change YouTube to the point that I can’t watch TV ads from 1997 anymore? How on earth do they make any money considering they don’t sell anything? How will this affect me, considering I spend most of my waking day searching through YouTube for videos of Borat? Let me quell your fears with some hearty breakfast facts!
YouTube makes money. Lots of it. Thousands per day. There’s adverts on YouTube – and along with Google’s philosphy, adverts = money. With so many users visiting the site on a daily basis, it’s not hard to see that they’re making a lot of money from people simply willing to look at the adverts. More importantly, YouTube is a market leader, and is therefore of great interest to venture capitalists, who like to affirm they’re faith in taking humungous risks with large sums of cash by plugging money into whatever catches people’s interest. Sequoia Capital has invested around $12 million in YouTube alone.
The more important point, however, is that of why Google would want to buy a company that is under such scrutiny from eager beavers waiting to pounce with any number of copyright lawsuits in hand. After all, once being snapped up by a company with literally billions in free capital, wouldn’t IP enforcement agencies and their lawyers not be even more eager to pursue what are for the most part largely legitimate cases against one giant rich offender? The point largely missed, even by big firm financial analysts, is this: that Google doesn’t necessarily have something, indeed anything, to gain by snapping up YouTube – it may in fact be a logistical headache – but that it has the most to lose by not taking the site under its umbrella.
YouTube is a fairly small company despite it’s market position. It has, by latest figures, 67 employees in the company – in comparison to this, Google has a figure approaching 10,000. The chances are the large part of these are IT professionals in one sense or another; project managers, web developers, hardware administrators etc. who organise and maintain the day to day running of the site. The chances are equally similar that although having legal advisors, they’re legal department doesn’t approach the kind of bait-requiring complexity that Google enjoys. In the face of several convincing IP lawsuits, and with it’s very obvious position of breaking IP law across the board, it’s unlikely that YouTube would have been able to hold its own and would have had to cave on several key positions. In this scenario, it would be Google that would have come off worst. Cases like this would have had a tendency to set precedent on several battlefields that Google itself is currently fighting on. It’s own video service, news and most importantly book search have come under intense criticism over the past year or so from those most readily defending copyright law in the US. It’s important that in these cases that others are fighting, the outcomes swing in Google’s favour, otherwise it would have found the going increasingly tough in getting it’s way in such situations. YouTube was in the unfortunate position of being the most vulnerable to these kind of attacks; having a site who’s infrigement is blindingly obvious, but being so weak in corporate terms so as not to be able to defend itself. Google’s acquisition was simply giving it the ability to allow its own legal team(s) to take care any such matters, rather than to affect the service and its millions of avid customers.
In the end, Google had very little choice – the $1.65 billion fee wasn’t so much for YouTube itself, but for the peace of mind that the major internet copyright battle was still left for Google to fight.