Perspective: OK, so Eric Schmidt is a moron

So it's settled: Eric Schmidt is a moron.

Only a couple of weeks ago tech bad boy Mark Cuban publicly questioned the intelligence of anyone who would buy YouTube.

When Cuban delivered his speech to a group of advertisers, he said the risk of getting sued was simply too high. All you need is one mean lawyer with a solid case to make life oh-so-difficult. And let's not forget--YouTube is a company that depends upon contributed video uploads for its survival.

To the delight on the Wall Street crowd, Google announced Monday it would pay $1.65 billion to buy YouTube. If there's litigation in the future, Google's not sweating. With its fabulously deep pockets, the company knows it has the wherewithal to defend itself against annoyance lawsuits for the next millennium. In the meantime, management believes there's a way to mesh search monetization with the leveraging of social networks.

Is it possible that Schmidt, Google's CEO, blew it so badly?

I pinged Cuban, who said he hasn't changed his opinion. (Here's a link to Cuban's expanded comments on the blog he keeps).

YouTube indeed may become the future of contemporary entertainment, but right now it's still a site where I goof off and watch dumb cat videos.

Cuban's a clever guy and he knows how this business operates. In 1999, he sold Broadcast.com to Yahoo for more than $5 billion. That was a ridiculous sum for a money-losing dot-com outfit, but during the heyday of the Internet bubble, companies did deals to "acquire eyeballs." Tech companies swore they would never repeat that mistake (more about that in a moment).

Yahoo deserved what it wound up with--which in this case wasn't much. Cuban was smart to take the money and run. (For the record, the people managing Yahoo were so clueless that they paid another $2.8 billion to buy GeoCities the same year.) Yahoo's sundry stupidities paled in comparison next to Terra's $12.5 billion purchase of Lycos and @Home's $7.2 billion buy of Excite.

Things are different now, right? So the say the experts.

Schmidt obviously thinks this deal is anything but stupid. During a conference call with reporters and analysts, he even suggested this was the beginning of an Internet video revolution. YouTube co-founder Chad Hurley was no less enthusiastic when he declared that the nature of entertainment was changing.

But it's too early to work ourselves into another hyperventilating lather. Right now, this is a PowerPoint presentation with more questions than answers. Something about these grand predictions always leaves me flat. Talk all you want about potential revenue synergies, but haven't we seen this movie before? YouTube indeed may become the future of contemporary entertainment, but right now it's still a site where I goof off and watch dumb cat videos.

If Google's gambit eventually does pay off, it surely will fit with the times we inhabit. With a salute to the late Sen. Daniel Patrick Moynihan, the dumbing down of America is hardly news anymore. Fact is that much of the contributed material you'll find on YouTube makes for a monumental waste of an evening. Is it any coincidence that YouTube's become one of the most popular Web sites in cyberspace?

Aren't they only giving the people what they want? Sure they are. Schmidt, Hurley and the rest of their management may possess a better crystal ball. If Lonelygirl15 is a harbinger of societal tastes, Google stands to make even more billions in the months and years ahead.

At that point, Schmidt will rank as the wealthiest moron in history.

Biography
Charles Cooper is CNET News.com's executive editor of commentary.

More Perspectives

[brundlefly76]

Cuban is a moron

Cuban is the poster child for people who made billions for all the wrong reasons, and afaik absolutely both of his *original* ideas (Broadcast.com and Voom) were just plain duds.

So, lets stop listening to him, k?

[Nemotarius]

Cuban = Moron

Absolutely true. Cuban is one lucky S.O.B. he sold his company when he did. That was the first and only thing he did that was smart. He makes a fool of him self at basketball games and at press conferences. Just take your money and go away already!

[RomanG07]

Schmidt's No Dummy

Mark Cuban couldn't monetize his site and Yahoo couldn't effectively monetizing search. So its not surprising that their collective "genius" saw their web properties' value decline. Now they come along and claim Google is dumb when Google is making money hand over fist and have numerous clear revenue channels with the YouTube acquisition. Sounds like someone is a bit jealous if you ask me.

Google will benefit for the following reasons:
1. Google search box on every YouTube page will only help improve Google's search market share with direct benefit to bottom line.
2. Adwords alongside every video.
3. % of revenue from actual sales of videos.

The risks are manageable and the reality is that the major content holders will not want to sue the company with 60% market share of the online video market. GoogleTube will be the fastest way for the major studios/networks to get their content in front of a major audience and have no reason to sue Google as it will only jeopardize their relationship with them. Nothing deters law suits like risk of cannibalizing a potential revenue stream.

This acquisition came at a bargain price compared to the Google/Myspace deal and they will have a majority stake in this market in a rapid way while diversifying their revenue stream.

Mark Cuban was smart enough to sell his company at the right time. But if he was smarter, he would have actually turned it into a profitable business. Perhaps he can keep his jealousy in check.

[hybris06]

Your forgetting the competition

You are forgetting something: competitors to You Tube.

Many of the individuals who own the video content might also want to launch their own services. If Time Warner wanted to cut Google out of the picture and possibly create their own more potentially lucrative site they could sue. If you look at the Grokster case as a precedent, You Tube is enabling massive copyright infringement. Even though You Tube promises to remove copyright infringements, this passive, non-active approach would not hold up in court.

Therefore, Google's purchase is only good if the individuals who own the content is being illegally uploaded on You Tube agree to allow it. The problem is, it only takes one content holder to sue and to get an injunction forcing You Tube to remove every copyrighted work from its site that it does not have the explicit permission of the owners to display.

As much as I like watching the home made videos on You Tube, what brings the massive amount of traffic to the site is the copyrighted work, aka. TV show clips, music videos, etc.

One more thing, Time Warner has stated in the past that though You Tube has a lead in market share, the big content owners (such as themselves) will be the real winners, surpassing You Tube in the future with their own services.

I think this purchase has more in common with broadcast.com and Yahoo than you think.

[Blito]

...a site where ALLOT OF PEOPLE goof off and STREAM ROCK VIDEOS FOR FREE

At You Tube, look up any band and you can find allot of their interviews, some of their best DVD material, and most of all their videos and history. It's great fun all for free and it constantly evolves depending on people's requests in the commentary.
They do have a channel section where hopefully they would allow real feature length stuff with better quality.

It's completely different then broadband.com and the dot com bust because actually people are going to see the site. The Internet was completely mismanaged in the late 90s. You Tube is in top 10 so that's ad revenue.

Google could offer competition for movie makers and give studio time with their money. That way they can keep more of the ad money and have more control over it.

[ballssalty]

He isn't a moron, however he's still taking a huge gamble

Google just dropped 1.65 BILLION dollars on YouTube. Do the math. They have to make 1.65 BILLION dollars back in advertising sales in order to lose money. Why? Because that doesn't include the ongoing operating costs. Google itself did about 4 billion in ad revenue the past 12 months. That's not profit. That's revenue. And most of it came from their AdSense Network, not their own owned sites. YouTube does not have the reach of Google's Ad Sense network. Subtract all the money it will cost them to fight the hundreds if not thousands of copyright lawsuits plus the ongoing expense of operating a bandwidth heavy site where no money is made and do the math. This is a money losing venture.

Whatever they do to keep copyright lawsuits at bay will decrease the amount of traffic the website gets. Napster is a good example. Once they blocked all copyrighted content traffic on Napster dropped to nil. The same will happen with YouTube.

So why did he do this deal? Possibly to kill off competition to Google Video. Otherwise it really makes no sense. The cost of maintaining the site and the low amount of advertising dollars they'll be able to bring in makes this another dotbomb. The only way it could be a success is if they bought it for reasons other than eyeballs and ad revenue, because those reasons alone make this a really bad deal.

[bingbongtom]

They already made money on the deal

they paid in stock...and the stock went up

and we're all here talking about how much of a powerhouse google is

ps - copyright infringement is no different for google video - so that point is daft

[keeperplanet]

Cuban also said . . .

to Forbes Magazine in an interview when asked, What is the best investment advice you ever heard?

Cuban said: When you look at an investment, always look for the sucker. If you don't see one, it's you.

I think a lot of us are still wondering if Google will pull it off in the end. Certainly Wall Street thinks so, either that or it has its head in the sand regarding Google's market cap value of something like $431/share (yow) with not enough revenue to gas up the party plane? Somewhere along the line, common sense should prevail like it did post bubble.

[ejackson_ca]

GoogTube is Google's Second Act

Let us wait and see. And let's admit our mistakes, if we are wrong down the road. I believe the acquisition was an inspired move for Google. They needed a Second Act -- despite their dominance today in Search -- and this smells like a winner, giving them 57% of a growing and passionate social community. The comparisons with Broadcast.com are irrelevant. More of my analysis of the deal is here: http://breakoutperformance.blogspot.com/2006/10/google-youtube-shona-brown-and-galaxy.html Thanks, Eric

[jskeels]

YouTube is not Napster....

Cuban's (and others) comments seem to compare a Content Piracy application, such as the old Napster, with a Content Presentation application such as YouTube.

The economics of information are such that the (beneficial) delivery of low-quality versions of content can be extremely valuable to the high-quality content owner. My prediction: al the big fish will do deals with these guys -- its awin-win.

[ballssalty]

Because Napster is a relevant comparison

Without content Napster was useless. Same goes for YouTube. I do agree that the big fish will do deals, but that means the consumer will have to pay. If the consumer has to shell out $$ the traffic to the site will drop dramatically. Advertising alone cannot support it.

[Jack Ryan III]

No, Google isn't afraid of stealing

No, YouTube isn't Napster--not for the same reasons as others give. YouTube engages in DIRECT copyright infringement. YouTube is a business that has enriched its owners beyond all recognition based on the backs of "user generated content". YouTube has no technology. YouTube has no business.

Dotcommism is back. And artists are getting screwed again. What else is new?

[ravijp]

No original content doesn't mean no business

Jack Ryan wrote:
"YouTube is a business that has enriched its owners beyond all recognition based on the backs of "user generated content".

Huh?

What is a search engine but an index of "user generated content"? From Google to Yahoo to Ask to Altavista, all search engines have no original content and make money "based on the backs of "user generated content".

Wake up - we have fire now.

- Ravi Jayagopal
Founder, http://www.WebmasterInABox.net

[ravijp]

No original content doesn't mean no business

Jack Ryan wrote:
"YouTube is a business that has enriched its owners beyond all recognition based on the backs of "user generated content".

Huh?

What is a search engine but an index of "user generated content"? From Google to Yahoo to Ask to Altavista, all search engines have no original content and make money "based on the backs of "user generated content".

Wake up - we have fire now.

- Ravi Jayagopal
Founder, http://www.WebmasterInABox.net

[ahickey]

I don't see the business

Google has one revenue stream - ads
YouTube has one feature - videos

If I'm looking at goofy videos of people injuring themselves what ads would go with it that would be relevant to me?

I feel that Google?s ads are becoming like the original banner ads, clicked on at the beginning because they were new but are now becoming wallpaper.

When I surf a site with Google Ads I just don?t even read the block of ads. Same when I use Google to search. The last place I look is the right of the screen.

The only business I see is commercial video clips from the major studios and record companies accompanied by ?buy now? advertising. This is very different to the current ethos of YouTube and may alienate the very audience that has made it popular.

Overcoming this is a huge challenge and one that I don?t expect to be resolved in the next 2-3 years as the bigger/wider shake-up in the media industry is sorted out.

[bingbongtom]

VIDEO + ADS = VIDEO ADS

duh.

[ravijp]

What iTunes did to Audio, GoogTube will do to Video

That is not dotcommism. It's called "Web 2.0", no matter how cliched it sounds.

Artists will get paid. Maybe a little too little, a little too late. What can you do? Piracy happens.

There's a reason why dinosaurs became extinct - they couldn't adapt.

iTunes did not happen overnight. The same will happen to video too.

It is called evolution.

- Ravi Jayagopal
Founder, http://www.WebmasterInABox.net

[eric.meyerson]

Master of catchphrases

*Web 2.0
*Evolution
*Dinosaurs
*"They'll be the [establish company] of [different media"
*No actual explanations of revenue or profit

Yes, that is EXACTLY dotcommism.

[orfeu_niko]

Dinosaurs did adap

They are called now birds, and mamals ...

This in nothing else than some venture capital firms making money easy. After all, that's why they have a place on the bord ...

[jkeehnast]

Schmidt?

I mean sure he's the CEO, but don't you think Larry and Sergey drove this?

[eric.meyerson]

YouTube is utterly dependent on infringement

I'd like to look at the % of traffic that's from copyrighted materials vs. the % that's homegrown. YouTube is currently used as a copyright-free repository for video reference -- as a prior commenter said, last night's big play or a scene from a TV show.

Sure, the studio will "do deals," but it will be for them to present the video THEY want, as they want it. And will people pay to watch video on their computer?

Some people think YouTube will be for video what iTunes was for music. But unless YouTube comes up with a way to watch the video on portable or otherwise offline media, *iTunes* will be iTunes of video.

[bingbongtom]

Google didn't pay in Cash

It's a small fraction 2% of the company...and I believe GOOG stock jumped higher than that today

[K.P.C.]

If Google . . .

. . . hadn't snapped up YouTube then guaranteed M$ would have
and everyone knows they would have either screwed it up
YouTube big time or buried it.
(SoapBox - gimme a break)

The people at Google are focusing on the volume of traffic that
YouTube gets daily. You add that to Googles already impressive
traffic volume and your able charge that much more when
selling advertising space.

Aloha! ;-)

[K.P.C.]

lol - repost minus typos :-)

If Google hadn't snapped up YouTube, then guaranteed M$
would have, and everyone knows THEY would have either
screwed up YouTube big time or buried it.
(SoapBox - gimme a break)

The people at Google are focusing on the volume of traffic that
YouTube gets daily. You add that to Googles already impressive
traffic volume and you're able charge that much more when
selling advertising space.

Aloha! ;-)

( They were only minor typos but they bugged me when read the
post - Cheers!)

[mshidden]

Google knows how to leverage eye balls.

This is not a dot com buy, by an ignorant tech want be company. We are talking about and exceptionally success dot com Company. A profitable major survivor of the bubble Google is already a copyright litigation lightning rod; it might as well hold the benefit of its position.

[baswwe]

What was wrong with videos.google.com? Same as YouTube, no?

I don't see the difference..except you can post 'video responses'.

Like anyone has time to watch that crap.

[chuck_whealton]

You're right...

This was a waste of 1.65 billion. Their own video service did the
trick, if you had time to waste on that garbage (most of it). They
should have simply grown their own video service.

Basically, all they appear to have done is "buy the competition".

Maybe they can make a bunch more bad deals and we can quit
hearing about them already. I'm sick of hearing about Google.

Charles R. Whealton
Charles Whealton @ pleasedontspam.com

[kael10]

Mr. Schmidt owes his success largely to a global network of mobster fiends is what I hear from rival mafia. They say it was him that was directly responsible for the colosal profits made from promoting child pornography with the Google search engine.
http://endmafia.com
http://cid-21ccdb1c1e0c985a.spaces.live.com/blog/cns!21CCDB1C1E0C985A!130.entry

[kael10]

Mr. Schmidt owes his success largely to a global network of mobster fiends is what I hear from rival mafia. They say it was him that was directly responsible for the colosal profits made from promoting child pornography with the Google search engine.
http://endmafia.com
http://cid-21ccdb1c1e0c985a.spaces.live.com/blog/cns!21CCDB1C1E0C985A!130.entry

[kael10]

I hear from rival Mafia that Eric Schmidt owes his success largely to a global network of mobster friends, and that he was directly responsible for the 'obscene amounts of money' made from deliberatly promoting child pornography produced by his cronies.
http://endmafia.com
http://cid-21ccdb1c1e0c985a.spaces.live.com/