Why Google didn’t pay too much for Youtube. By Even Aas-Eng

Ever since the Google takeover last fall there has been a lot of talk about how you tube will make money and if Google bought the hype and nothing more. Almost all debates have centered around video ads and how to create a sustainable business model without interrupting the fragile feelings of the you tube community!

And yes, there are a lot of uncertainties and a lot of trouble with regards to copyright issues and how to monetize video ads, so lets just forget all that for a moment and look at some figures instead.

According to Google, you tube had 133 million users in February. According to Alexa a you tube user sees 12 pages on an average visit. That means that you tube has around 1,6 billion page views every month. That again means around 19 billion page views in a year. You tube are experiencing a substantial growth so lets assume that the yearly number of page views are 15% higher than that. That gives us a total number of 22 billion page views per year.

So, can you make any money on 22 billion page views? Obviously but the question is how much.

Before the Google buy out You tube was running Google text ads through their AdSense system. Rumor has it that they made 15million$ in 2006. Keep in mind that this was before the takeover and that Google also made money on these ads. Lets assume that the split was 50/50, that would mean that the total ad revenue in 2006 was 30 million $. But still the price of 1,65 billion $ was too high right? not necessarily...

You tube today have four times the number of users compared with 2006. Since the AdSense models only parameter is volume we can safely assume that the ad income will follow the increase in users. That gives us a total ad revenue of 120 million $ in 2007. And then the picture doesn't look that hazy anymore.

Okay, lets look even further into the crystal ball. Google started some time ago to run image ads trough the AdSense system. They are sold on a CPM basis through the normal bidding process. Just like search was a bargain in the early days so is CPM advertising on you tube at the moment. But that is changing as I wright this, the market is doing its job and adjusting prices every second.

In the Norwegian market a normal CPM price is about 25 $ and on some niche sites the price is substantially higher. Now lets assume that you tube are able to sell all their page views to one advertiser at the average Norwegian price of 25 $ per CPM. That would generate 550 million $ worth of ad revenue per year. There will be some cannibalization here towards text ads but lets say the the total ad revenue potential is somewhere in the range of 700-900 million per year. Then it looks like a rather good takeover, doesn't it?

This wont happen this year and not in 2008 either but they will get there. And this is before they have solved the video ads puzzle. The only threat's I see for you tube success is competing sites. Traffic is the only road to success in this business model and that's why you tube want take any chances on loosing users by fiddling with the actual videos.

What is wrong with traditional media companies? By Even Aas-Eng

My plan is not to post personal outburst on this blog but this time I cant help myself.

On Tuesday there where champions league matches and I was watching Liverpool VS Barcelona. If you follow football you would know that a lot of action took place during the Valencia VS Inter match that was on at the same time. It wasn't football action but never the less interesting!

But I didn't see this as I was busy watching the other game. The next day I read about the fighting in the newspapers and I wanted to see the actual incident. Could I find it on any of the newspapers, NO because they don't own the rights to broadcast champions league football. That's annoying but understandable. So I went to you tube and searched for Valencia Inter but only got old matches between the two teams. Then the real quest started.

I watched the sports news at TV2 online but they didn't have any pictures because the show was sent before the game ended. I tried other newspapers in Sweden and UK, no live pictures there either. Then I went to TV3 web pages, the company that have the rights to send CL matches. What did I find there? Absolutely nothing! Well I did get a short look at what quit possible is the worst website ever made. http://www.tv3.no/index.php?option=com_content&task=view&id=9057&Itemid=954

Then I did get to see the incident at the TV2 daily news show on TV, but they only showed a short clip. The quest continued!

I tried some more news sites before I ended up at you tube again and searched for Valencia, Inter, Fighting, 2007 and found A LOT of clips of the incident.

So my point here is that five of Norway's largest media companies had their chance to provide me with what I was Looking for. I was willing to spend 10 min on their sites being exposed for all their commercials and maybe I would have been willing to pay to see their content. None of them took the chance and I ended up at you tube. Get a grip guys, you are digging your own grave.

And then second life was back again! By Even Aas-Eng

A week after my last post second life was back with a very funny story. The American presidential candidate John Edwards has jumped on the second life train and has built himself a little mansion there. The funny thing is that the whole place was vandalized this week, presumably by angry republicans with to much time on their hands.

Anyway, it tells us again how important it its to engage community users if you want anything to happen. But I don't think John was very happy with this engagement!!