The “GooTube” Business Model

After taking it easy on work for a few days, I’m trying to get caught up. So I still have a large blog backlog.

Perhaps the most widely discussed Silicon Valley story of 2006 was Google’s acquisition of YouTube. YouTube was 20 months old, had 19 employees, never made money, and had huge (and rapidly increasing) infrastructure costs, but they still got nearly $1.8 billion in Google stock, creating two new centimillionaires. Even more oft-remarked here is that Sequoia Capital got a 40x return in less than a year — as opposed to waiting 5 years for the 400x return on their 1999 Google investment.

Two of the key questions about the acquisition are how will Google make money off the deal? And how will they handle the issue that their most-watched content is no more legal than Napster?

I could comment on this (and may), but today I found perhaps the definitive source of commentary: the blog of Mark Cuban. OK, he’s biased: near the peak of the dot-com bubble, in 1999 Cuban sold Broadcast.com to Google’s rival Yahoo for $5 billion, and remains a billionaire with his own basketball team.

Still, Cuban has been offering an industry insider’s perspective on what he calls “Gootube,” identifying the treacherous shoals that Google must navigate to avoid making entertainment industry lawyers even richer. His comments in just the last month have included:

• Thursday’s post about what he would hope to learn by subpoenaing YouTube customers;
• How the Oscars could have made money off of YouTube without its cooperation;
• Google’s minimal compliance with the DMCA by only filtering copyrighted content upon complaint.

As a Google user, I like that Google’s (text) search model has the largest possible supply of content. As someone who teaches intellectual property and strategy, I can’t figure out how its opt-out policy towards distributing others’ IP fits under US copyright laws.

Graphic credit: blog.webvideozone.com

Technorati Tags: business models, Google, intellectual property, video