Google veers off strategy with YouTube

These opinions are also a post on WebProWorld.

I’m a great believer in the theories of positioning as expounded by Trout and Ries.

See:Positioning

According to my interpretation of the theory, Google owns the word “search”. It may also have ownership of analogous terms such as “search engine” and “paid search”. This ownership is backed up by strong branding and a loyal consumer base. Together these components add up to competitive advantage and ultimately profitability.

However, Google doesn’t own the terms “news”, “spreadsheet”, “maps” or “online video”. Either other corporations, e.g. Microsoft with spreadsheet, own these words. Or, in the case of a subject such as news, ownership is diverse. In none of these categories does Google make any money (profits).

In the current environment, YouTube appears to own the term “online video”. Google obviously sees the YouTube acquisition as a cost effective way of entering this growing market category. But in my opinion this market category is so embryonic that YouTube can hardly be said to have an entrenched and easily defendable market position. Its competitive advantage is intrinsically emphemeral. Turning a notoriously fickle and faddish audience – teenagers – into a profitable business model will not be anywhere near as easy as generating positive cash flow from Adwords.

The very essence of the youth social networking and related markets is newness and radicalism. Just look at the decay of the Napster brand. 2 years ago its very illegality made it cool for youngsters. Now the brand is lost in a fog of competition. YouTube’s acquisition by a respectable, listed corporation will by definition temper its radicalism. Copyright and other constraints will open the door to a host of imitators prepared and able to operate closer to the limits of legality and taste.

In my opinion the valuation model of the YouTube business model should be one more akin to investing in a boy band, rather than a solid media business. And we all know how long boy bands last.

Once the hype dies down, solid analysis may well show the high water mark has been reached.

Oct10

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