Do you remember the good ol' days of YouTube? Back when a private company owned it and you could post and view whatever you wanted up there and no one would say a word because, well, it was practically bankrupt and copyright owners knew they wouldn't get anything out of a lawsuit? Those were the days, weren't they?
Now, after a $1.65 billion buyout by Google, YouTube is not only a veritable junkyard for all the crap we didn't watch a couple years ago, but a bloated mess that costs too much to operate, has a huge lawyer target on it, and barely incurs revenue.
And to make matters worse, Eric Schmidt, the CEO of Google, has no idea what to do about it.
Speaking to The New Yorker, Schmidt said that it "seemed obvious" that Google should be able to generate "significant amounts of money" from YouTube, but so far, it has no idea what to do.
"The goal for YouTube is to build a tremendous community....In the case of YouTube we might be wrong," he said. "We have enough leverage that we have the leverage of time. We can invest for scale and not have to make money right now, he said. Hopefully our system and judgment is good enough if something is not going to pay out, we can change it."
But is changing it really the best idea? Since Google acquired YouTube, the company has tried desperately to make something, anything, from its $1.65 billion investment, but so far, it has failed miserably. Of course, it thinks that 'pre- and post-roll' advertisements may work, but the company isn't too sure.
And therein lies the rub. If Google is unsure of how it can turn a profit on YouTube and it still has no idea if it will be able to get a return on its investment, why shouldn't it cut its losses and do something drastically different?
Now I know that you're probably thinking that I've lost it and my editor overlords will finally put me out to pasture, but think about it for a minute: why should a company that overpaid for a service continue to dump significant amounts of cash into it (not to mention spend millions on copyright lawsuits) if it has no chance of creating a valuable revenue stream?
Obviously Schmidt is doing all he can to allay shareholder fears over the YouTube debacle, but the very fact that he said anything about it is telling. And to make matters worse, Google's ad revenue on YouTube is so low, it's not even material to the financial statements. In other words, if Google is making anything with YouTube, it doesn't even matter.
Let's face it -- the YouTube acquisition was a major blunder and regardless of how successful the company is in other areas, there's no reason to suggest advertisers are willing and ready to place ads on videos of 18-year olds shooting milk out their nose or 80-year old men mooning a parade.
As far as I can tell, much of the online advertising money is going to sites like Hulu where the content is controlled, the shows are regulated, and the demographics of the audience are easily obtained.
How does YouTube and its content compare? The audience is huge, but it's filled with a diverse set of people who generally view a select few of the more popular videos; the videos are barely regulated; and the content isn't controlled in the least. Why should any advertiser want to send cash to a service like that?
Now I understand that Google wants to be a major part of the boom in online video advertising and I can't blame the company for it. But doesn't it understand the average company that's trying to make people want a given product? It's as if Google believes that sheer popularity is the only factor that advertisers use before they start throwing cash around.
But what about perception or target audience? Did Google forget about hitting the right market segment or putting ads in the right place at the right time?
Now, I should note that this doesn't mean that YouTube won't find itself advertisers. Certainly there are companies that would be more than happy to spend money on YouTube, but what kind exactly? Will YouTube become the dump of advertising where strip clubs and brothels will advertise on sexually-oriented videos and unknown politicians will sell themselves on left- or right-leaning clips? I certainly don't see Johnson and Johnson sending ad dollars to YouTube anytime soon.
Lost amid the shuffle, though, is the question of ad dollars itself. How does Google monetize YouTube on videos that you create? Sure, it figured out the online business, but video is a totally different game entirely and without creative control over the content, ads may be found on videos that could leave a bad taste in Google's mouth and yours.
Beyond that, YouTube costs Google millions each month and I'm just not sure how long the company really wants to maintain that loss until it follows a new course.
Killing YouTube would obviously be the last resort and I think there are a few options Google has before it's forced to pull the plug. But if it can't find a way to regulate some of the content that will host ads and it doesn't attract high-paying advertisers, it's sitting on a billion dollar mistake that keeps draining cash from its coffers with each passing day.
YouTube was the greatest blunder Goolge has ever committed and it better act quickly if it wants to turn it around. But if it can't right the ship over the next few years and advertisers start spending more cash elsewhere, YouTube will be nothing but a repository for people to upload crappy videos that have no commercial viability. And for Google, that's unacceptable.
Google is trying to run a business that is responsible to shareholders. And while it may have the cash to keep one of the world's most popular sites running now, popularity of a website, in and of itself, should not justify its operation. If the company is losing millions each quarter, I simply don't see why it should keep it up.
It may sound ludicrous to shut down such a popular site, but we're entering a new generation of entertainment in the online space and pageviews don't always mean success any longer. Especially if a company is spending millions just trying to keep a website alive.
I would love to see YouTube survive, but business is business, and if Google can't turn things around, I simply don't see any other option for Schmidt and company.
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