We Should Care About YouTube’s Core Business, Not Their Market Share

With all the back and forth on the blogs this week from those trying
to predict exactly how much money YouTube is losing, personally, I
think many are still missing the bigger picture when it comes to
YouTube and how we value companies in this space. Maybe some of us
simply want to see different things for the industry or judge the
success of the industry on different metrics. For me, I want to see
companies in the space last for ten years with a sustainable business
model that actually generates revenue. To me, that is the only real way
any company should be judged in any industry, Internet related or not.

But
these days, especially with YouTube, many simply want to only focus on
their "market share" or the number of videos being consumed as somehow
equaling success for the company. That seems to be the same metric that
was used in early 2000 when the vast majority of content portals said
that all they needed was a lot of eyeballs to be successful and that
the number of eyeballs was all that mattered. How well did that work
out?

I've seen a few blogs posts this week that say it really
does not matter how much money YouTube is losing since they maintain
such a dominant share of the number of hours of videos viewed each
month. While that's a nice stat, for me, it means nothing if you can't
generate revenue around it. Would you rather run a business that can't
sustain itself, but has a lot of market share, or run a company that is
profitable, but has less of a market share? The fact that it's so hard
to name a lot of companies that are still in business today, from just
five years ago, shows that this industry has to be more than just about
who has the most "market share" at any one given time. This has to be
about creating a sustainable business and that is all that should
matter. How many companies really care about their "market share"
anymore when their company goes out of business? So when people say
things like YouTube has "strategic value" to Google or is "part of the
bigger picture", that's all just marketing terms. Try defining them.

The
other problem with this whole "market share" idea is that in any other
segment of our industry, market share is usually determined by revenue
and not by some metric like number of streams. When you hear companies
talk about market share, even for something as simply as content
delivery, these companies are talking about revenue, not the number of
streams delivered. Most other segments of our industry define the
success of a company and base the market share percentage off of
revenue and not some other metric that is not tied directly to revenue.
The industry's metric for determining the success of YouTube should be
no different and should not be determined based on the number of hours
of video that are consumed.

The other argument I keep hearing is
who cares how much YouTube is losing, Google can afford it. As far as I
am concerned, anyone who says that is not a business person. They don't
get it and they have probably never run a business before. The point is
not whether or not a company can afford to lose the money; the point is
how the company is going to show a profit. Even Google needs to show
value to their shareholders and is not immune to the basic principles
of P&L that any business strives for. Yes, the fact Google has deep
pockets does buy them time and allows them to take a bigger chance in
the market since they can last longer trying to monetize YouTube. But
how many years is Google willing to lose money with YouTube before it's
deemed a success? It's been almost 3 years now. So what's acceptable?
Four years? Five years? No company has an open window of time to just
lose money forever. So for all the people who say, we're in the early
stages of this, Google has the money and is betting on the future, I
ask you when the future is? How many years of Google losing money on
YouTube is acceptable?

And what would have happened to YouTube if
Google had not acquire them? Three years later YouTube would be in so
much debt it would be silly. The amount of money they would of had to
raise by now to support the business three years later would have been
insane. For all the people who say it's YouTube's market share that
matters, would you be willing to work at YouTube if they didn't have
the backing of Google? Probably not. Because it would be very hard for
you to keep your job at a company that loses money year after year,
even with the "market share" that it has.

I know I am going to hear
from some who say why am I always down on the industry? Why do I come
across as being so negative about companies in the industry like
YouTube? Again, maybe we want different things for this industry. But
for the past fourteen years I have enjoyed working in this industry,
trying to help educate people, help the industry grow and the industry
has taken very good care of me. I love what I do and I don't know
anything else. I want to see companies in the industry be
self-sustaining, create real value and have longevity.

Like many,
I've seen when has happened in the past when we've had a false sense of
security, when we have valued companies incorrectly and when the
"industry" places more value on number of streams or eyeballs as
opposed to profitability. That's not the kind of flash in the pan
growth I want to see again and it's not good for any of us who work in
the Internet space, as it's not sustainable in the long run.

The
mentality of how we judge success in this industry needs to change and YouTube is
just one example of many. Just look at the debates going on about the
"value" of Twitter simply due to their traffic growth. I don't know why, but
the Internet space seems to be the one industry where many don't care
about business rules that define whether or not a company makes it. In
other industries, it would not even be a debate. But in the Internet
space, the importance of the lack of profitability with companies like
YouTube seems to want to be debated. That is just bad business.