Don Dodge over at Microsoft has a great little thumbnail analysis of the business prospects of YouTube and Facebook, and concludes both are way overpriced at current valuations and Facebook is more valuable at 700 million. He cites Scoble’s latest thinking on the topic as well though it seems to me Robert seems too supportive of buying anything that even smells like Web 2.0 and is still feeling a bit hostile toward his ex employer. I don’t blame him for that since he was way ahead on the new web and blogging and Microsoft’s failure to “get it” must have been really frustrating.
He’s not doing an extensive analysis but this is the best actual math I’ve seen regarding these deals, which as Don indicates with his little summary, appear to be valued more like Granny’s china than businesses. Given the uncertainties I think he’s generous to go 20x expected earnings. The landscape is changing daily and it’s not clear people will stick to favorite sites the way they stick to favorite brands (I predict we the people will not show much in the way of online brand loyalty, and this will shake it all up a lot in the coming years).
Joe Duck 
YouTube is a moat around Google’s advertising business. It doesn’t have to make a cent to be worth it. Why? It keeps their best advertising customers (who spend billions, by the way, every year) from considering working with other companies.
It’s pretty interesting that you and Don don’t think there’s big bucks here. Tell me, is the $3 million for a minute of Superbowl ad time worth it? If so, why wouldn’t it be worth doing video advertising on YouTube?
Hey Robert, an honor to have you posting over HERE!
Nope, an average Superbowl ad is not worth it, let alone an average TV ad campaign. I think the TV advertising emperor has few clothes and I think YouTube may be the vehicle that brings this to light over the coming years.
There are exceptions like Godaddy who got tons of extra publicity for the superbowl ads but I’d argue that TV ads have, on average, terrible ROI and that will become clearer as metrics improve. Too much ROI research is now done by vested interests.
But at 1.65 billion the issue isn’t “big bucks”, it’s humongously gigantic bucks. Think about it – how much would it be worth for ScobleShow (where the match with YouTube is favorable), to advertise there?
I bet the ROI will be way negative even though you can probably cut a good deal.
Hey – if I can blog and analyze the experiment I’ll help pay for it..
Love the debate both you and Robert are engaging in.
I referenced both your argument’s in a post on my blog, titled “Is YouTube cheap at only 330 minutes of Super Bowl ad time?” –
http://zenrob.typepad.com/zenrob/2006/10/is_youtube_chea.html
“So putting some structure around the rhetorical question Scoble asks – would you rather buy out the next 11 Super Bowl’s ad inventory, or would you rather own a technology platform/community that could generate the same reach (sort of – actually only 1/5 the reach, but assuming you hit them 5x as long) over 1200 days?”
Pingback: Zenrob: Can Youtube win 11 Superbowls? « Joe Duck
Naturally, the value of the deal will depend on the execution. Can Google insert ads on YouTube w/o alienating the user base? Will another video-sharing service catch fire? If Google gets the ads right, this could more than justify the price. I wonder if they’ll splash contextual ads on the site *and* embed video ads into the videos? I suspect they’ve got some solid ideas for monetizing this phenomenon. Plus, Google engineers will be able to redesign the backend systems to be highly scalable. IOW, YouTube will make more money yet save money. Again, depends on if they can retain the existing user base and continue to grow it. If the users are fickle, then this could fall apart.
Also, consider the fact that this YouTube team beat the pants off Google, Yahoo! and Microsoft. Don’t you think you’d want to hire these guys? How much are the people themselves worth? Maybe Google’s looking for some fresh ideas since they’re primarily succeeding in monetizing search and selling ads on other properties. Are they really simply an advertising company that happens to have some other cool software services/products?
Now, if they can continue to grow the YouTube community and can build more awareness for the Google brand, perhaps they can convince YouTube users to use other Google products. If that’s the case, they’ll earn money on ad revenue beyond the YouTube platform they’re buying. Perhaps it’s that potential that explains the premium.
Also, check out JenSense.com – she’s got some ideas for how Google will monetize the YouTube traffic.
Tagman – I sort of agree, but count the number of “ifs” in your comment above. A lot has to go “right” for Google to make this money back. I don’t think they will, but it may still be worth it as a deal that keeps competitors away.
A search insider was telling me that they he’s now confident Google is actively hiring “mission critical” search people solely to thwart the competition. Simply looking at the list of key moves over the past year supports this idea to some extent.