As you may have heard, there’s this little company thingy called YouTube that’s gotten a little popular lately, and then there were all these big companies that got interested in getting some of that popularity for themselves, because, like, they thought that it could make them some money, and, like, open up glorious new ways of communicating. And then this other company called Google got interested, and… well, 1.65 billion dollars and a lunch at Denny’s later, you know the rest.
I saw a bit of that video — on YouTube, natch — where founders Chad Hurley and Steven Chen get a little gloat on, calling the union of YouTube and Google that of “two kings.” But there’s long been rumored to be — OK, reported and confirmed — a Third Man behind the video site sensation, and of course, that man is desi.
At least from this New York Times profile, Jawed Karim, 27, sounds like a thoroughly nice guy and likeable nerd, and one with a knack for good ideas and an appetite for seeing them enacted. He was already an early participant in PayPal. But through his rise as an Internet multi-millionaire his chief focus has been academia.
Mr. Karim said he might keep a hand in entrepreneurship, and he dreams of having an impact on the way people use the Internet — something he has already done. Philanthropy may have some appeal, down the road. But mostly he just wants to be a professor. He said he simply hopes to follow in the footsteps of other Stanford academics who struck it rich in Silicon Valley and went back to teaching. …
David L. Dill, a professor of computer science at Stanford, said Mr. KarimÂ’s choice was unusual.
“I’m impressed that given his success in business he decided to do the master’s program here,” Mr. Dill said. “The tradition here has been in the other direction,” he said, pointing to the founders of Google and Yahoo, who left Stanford for the business world.
So it couldn’t happen to a nicer guy, and here’s a round of Sepia congratulations to Jawed. (No word on whether he’s single.) Beyond that, I’m curious about what all you tech and media macacas out there think of the whole YouTube thing. Obviously, it’s viral as a mofo and pretty fun to surf around. But do folks consistently use it to post their own content? Is it just a library of pre-existing content that at some point will find an intellectual-property arrangement with original providers and a commercial business model? Or is it a harbinger of paradigmatic change?
Much respect to our Bangla brother!
i have a bit of youtube envy… i was chatting with a friend last night..
me: can you believe 1.6 billion bucks in 18 months..what the hell were we doing? watching grass grow? him: you were saving lives.. me: more like living in a library and hitting my head on a wall.. him: you were saving lives.. me: um.. yeah…but 1.6 billion bucks does sound appealing right now… him: it was in google stock.. me: google is god… (in the internet sense) it is pure gold…
but kudos for him…and the other ‘two’ kings.. (that video is funny–they have a right to gloat..those lucky sons of motherless goats)…
Oh, GooTube.
I have to admit I waste more time on youtube than is good for me – music videos mostly.
Well done Jawed – your success makes me want to dress up as a tiger and sit in a cage.
Youtube is a mix of everything. It still has “low production value” or “amateur” associated with it, which is why studios haven’t jumped on it for selling their content. Although, it IS a huge step for studios to move in the direction of digital content distribution. Thats for sure.
hey, he took classes at my alma mater! Now I like him even more =)
Uh..
Google definitely has major plans for Youtube. Word on the street is that Google is going to make a huge play in content delivery in the not-too-distant future. TV shows, movies, all will be available online for instant wireless download/streaming (for a price). Its all about the convergence of voice/video/data onto a common platform — IP. I wouldnt be surprised if Google teams up next with an SP such as Verizon or Sprint, once their 3G networks are implemented. Imagine searching for your favorite episode of 24 via Google on your cell phone! Then the server farm at Youtube would deliver it over the high-speed wireless Verizon EV-DO Rev X network onto your phone. Cool stuff.
Karim apparently left the company to go back to school. I wonder if he’s going to miss out on the payola.
If you read the article, you might find out =)
he’s smiling in that pic with stanford in the background–where he’s finishing up a masters in cs.. i recognize the quad and bell tower anywhere.. :)..seems like a cool cat..tiger..or whatever animal you want him to be…
D’oh!
Kurma – I didn’t make it up!
that bro don’t know bangali according to his resume 🙂 so i gotz one up on him. btw, his younger brother looks like my younger brother!
I guess Razib is no longer the most famous Bangladeshi-American brown. Oh well… 🙂
that bro don’t know bangali according to his resume
Woh! Maybe he is not a Muslim believer either!
YouTube is a flash-in-the-pan. Can anyone say “dot com business model?” Hello? They’re sharing videos over the Internet. FOR FREE. Ad revenues will not now, nor ever, approach 1.65 BILLION. Google is in the process of losing its mind, because once again, a web company has taken its eye off the bottom line in search of hit count.
Stupid, stupid, stupid. The beginning of the end, once again.
If you need any proof of this, ask yourself the following: if ANOTHER great viral video-sharing website came out tomorrow, would you have any qualms watching the videos on that site? Put another way, do you feel loyalty to YouTube?
This is what Google is banking on, though. And while their offerings like gmail and blogger are fairly compelling by being in some ways measurably better than the competition, watching videos on the Internet is largely a function of what gets uploaded. The service itself has to fulfill a minimum quality, but beyond that it’s unimportant. Google should know this from its own foray into video sharing. And the service itself is hugely expensive and difficult to manage. Streaming video to the corners of the Internet involves some pretty sophisticated stuff: massive file replication (in the hundreds of terrabytes) across multiple data centers to provide regionalized caching for users so they get decent video quality. Even with the commoditization of hard drive storage arrays, it’s very very expensive.
It’s also not hugely profitable. Again, the money comes in from ad revenue. In fact, at the moment it’s not profitable at all. Google operates Google Video at a loss. YouTube won’t see a profit for decades.
So I say again: shades of the dotcom bust.
The guy is half-german. His native tongue is german not bengali.
I got the feeling he was squeezed out by the two primary founders of YouTube when they realized they had something big on their hands. Maybe thats why he was disillusioned by the business scene?
How much if anything is he getting out of this jackpot?
Google is sitting on 10+ billion dollars – they had to spend it somewhere. Not only do they get YouTube, they completely blocked out Yahoo (who was in talks to purchase YouTube) and MSN (who was in talks with YouTube to provide all advertising on the site). YouTube may not have a loyal following with people in our demographic/age group, but there are definitely millions of others out there who are obsessed with the site. Google isn’t just another stupid web 2.0 company – I’m sure they’re a lot smarter than you give them credit for.
A lot more on Jawed’s family background, and an analysis of the business aspects of the deal.
This is the second time he struck millions.
Coincidentally, Kiran Desai, who just won the Booker Prize, is also part-german.
Ah yes, the hand wave theory. They know how to transubstantiate lead into gold. They have a bunch of Ph.D.s. Prove me wrong! 😉
I have never heard of any of these major internet acquisitions as being worth the money. Has Ebay gotten anything for whatever ridiculous sum it spent on hype, I mean Skype? Dating back to the grand-daddy of all riduculously priced internet acquisitions, AOL’s purchase of netscape (which never made them a dime), they have all been a waste of money. The only people who come out ahead are the folks selling their largely worthless companies for unseemly stacks of (occassionally worthless) stock.
I think this little history of broadcast.com (which made Mark Cuban a billionaire and the acquiring company hardly any profit) will be quite similar to the YouTube story:
i’ll have you know that manish couldn’t tell 2 half-brownz apart!!! 🙂 ok, to be honest, i couldn’t either. my gf had to point out that they were siblings and in the same photoset….
No, they didn’t. They could have given it back to shareholders in the form of dividends. Of course, it’s much more fun to piss away shareholder money on sexy, high profile acquisitions that make management feel like masters of the universe.
Google give away dividends? Do you really think they would ever do that?
That question was once asked about Microsoft. Of course, many people still think they’ve paid out too little too late. However, similar to Microsoft, Google probably won’t pay out dividends until they are humbled by reality.
And, just because Google’s giant sized ego won’t allow them to do something as boringly responsible as payout dividends, doesn’t mean they shouldn’t.
I worked at Google (and also at Yahoo) as a consultant. And in a position which gave me a unique opportunity to witness a bit of how they conduct their business beyond the public eye.
Google is not saintly, nor even brilliant as a company. It does some unique things, and it employs a great many very intelligent people. My interview with Google was the hardest interview I’ve ever had (and it speaks volumes about their corporate ego and hubris that they interview consultants for signed contracts like mine and the company I worked for). I can tell you right now that they are exactly that: another Web 2.0 company. A big one, to be sure, and one with tons of cash. But money does not make you smarter, as Paris Hilton and Dubya prove to us time and again.
And the words you used are frightening, because I remember using words almost exactly like that about another company I worked for myself, called MicroStrategy, back in 2000. Do some research, see how that one turned out. Sonia, companies are not saintly, nor do they even have consciences. They are only as ethical as the people in charge, and if those people deviate from what you or I would consider good corporate governance, no one is the wiser until they get caught.
Again I say: $1.65 BILLION is more than half of ALL ONLINE ADVERTISING REVENUE IN 2005. Do you really think that YouTube will recoup this expense for Google? Would you personally do business the same way, and invest in something that costs you more than half of entire worth of the market it operates in?
Salil – I completely don’t think that Google is a saintly, or even very ethical, company. Yes, at one time I used to back when I also thought Google was God .. but that’s slowly changing as I see how they are encouraging click fraud and making much of my day job that much harder. But I don’t think there’s any proof yet that Google is “just another web 2.0 company” – maybe they’ll crash and burn because of this decision, maybe they’ll make it work – I don’t know, but I’m still giving them some credit and watching what they do before dismissing this as a useless purchase.
And hey, I work for a web 2.0 company and what web 2.0’er doesn’t dream of being bought out by Google? =)
Its a stock deal … and besides since announcing (or leaking the potential buyout) Google’s market cap went up by close to 5 billion dollars. So its FREE !!!
some web 1.0 companies burned and crashed. some web 1.0 companies became like amazon and ebay. google is probably the latter. but that doesn’t mean that amazon and ebay weren’t overvalued and overhyped in their day, and didn’t make stupid decisions.
Did I miss something? This is a stock only transaction, isn’t it? If Google’s stock tanks the 1.5 billion can just as easily become 100 million or 10 million.
The shareholders might be bummed out by the dilution of value but I didn’t think Google touched their cash on hand for this deal.
Salil,
Here’s my personal opinion on Google. As far as loyalty is concerned, you are right, I wouldnt have had any qualms about switching to another video sharing service as long as it was YouTube. But, for me, Google is an entirely different story. I don’t know how they managed it, but I have a fierce sense of loyalty towards all google products – google, gmail, calendar, scholar and now Docs. Partly because I’m so impressed by their ideas and mostly by their design simplicity and efficiency. Honestly, I’d have an even harder time now not using GooTube.
JayV — excellent point. It was a smart move on Google’s part.
The valuation is not just done on the present revenues; the present value of future revenues is a huge determinant, it is also important to keep in mind that the year over year increase in ad revenues from the article in the link in #28 above is almost 34%.
BTW, here’s how the loot is divided:
30% goes to the venture capitalist
20% to Chen
20% to Hurley
20% to employee options
10% to the half-desi.
So he did make out after all. But going back to college instead of staying with the company cost him over a 100 million bucks.
That doesn’t mean it’s free. Everyone gets diluted.
After the YouTube pop they lost $10 in share price. Oops. (This is not the way you value this.)
Look at their valuation and look at their actual biz model– the part which actually generates money. Search with text ads. That’s it. The rest (mail, maps, etc.) is largely unprofitable and is already being reined in.
And Razib, when those Web 1.0 companies (the distinction between a Web 1.0 and Web 2.0 company is purely arbitrary to me, by the way) crashed and burned, you know who paid for it, right? The little guy.
Even the ones who weathered the fire, they got hit bad when the fire spread. In the forest fire analogy, Google will probably survive any large downturn because it has significant cash reserves and several forms of revenue production. But if they continue to make stock deals like this one, that won’t last long. Much of their cash-on-hand is in the form of stock. And Google is in some ways a bubble waiting to burst all to itself.
So while RC’s commentary may be semi-joking (“it’s stock, so it’s free!”), that attitude does exist. And it can be the ruination of many a private individual.
This deal is about taking YouTube viewers and tying them to AdSense revenue. It could also inadvertantly force Yahoo to make certain acquisitions, too (Facebook, etc). It’s just bad business. It’s chasing eyeballs instead of money, and this lesson was learned the hard way only 6 years ago by most of the companies in the web world.
Salil Maniktahla on October 12, 2006 01:11 PM · Direct link
Microstrategy got into trouble because earnings statements that were fudged. The fact that they were overvalued as a company had everything to do with that and nothing to do with their business model. They provide business intelligence services to other companies. There are plenty of other similar products in the marketplace (Business Object, Oracle and SAP(I think)) that all compete for a slice of that pie. I am not sure the example is a good one to compare with. I think Napster is a better example to talk about shaky business models.
some great points here
It’s just bad business. It’s chasing eyeballs instead of money, and this lesson was learned the hard way only 6 years ago by most of the companies in the web world.
irrational herds anyone??? 🙂 yes, the g-men are geniuses, but it doesn’t mean they aren’t human. people learn the same lessons over and over. this acquisition will be good for marketing though, generating buzz, blah, blah….
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I never said it was free. I was pointing out that no cash changed hands for the deal and the 10 billion stays put for future dividends (Riiiiight).
The next big thing in the internet age is delivering video on demand. This could replace TV, Tivo, Slingbox, Blockbuster, Netflix etc in one fell swoop. Its potentially huge.
Google’s business model is the same as broadcast TV: free to the consumer, paid for by advertisers. Thats a guaranteed winner: who doesn’t like free? Imagine what this means: free TV, videos, movies etc anytime, anywhere. On your TV, monitor, PDA, phone, ipod etc. Thats a paradigm shift. A billion and a half is chump change when playing for such stakes.
Salil Maniktahla on October 12, 2006 01:42 PM
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Just to add to my point about google stock versus cash on hand. They actually do have cash and securities worth 10 billion dollars and are bordering on looking like a mutual fund company to the SEC.
(Bloomberg News)
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JayV: In fact, I was one of three principals who started up a wholly-owned subsidiary of MSTR (still in business and growing quickly, thank you) called Angel Voice Technologies (and also called, variously Voice Service Bureau, Speaker.com, and Angel.com). MSTR spent an amazing amount of capital and resources in creating startups outside its core business of BI, the worst offender being a neverending sinkhole called Strategy.com that sucked up a huge portion of the company’s revenue in 1999 and 2000. It was closed down by necessity in late 2000 or early 2001 (I can’t remember now). Much of this is not widely known outside of ex-employees, investors, and the like.
MSTR got busted by the SEC for misreporting earnings (slap on the wrist, Mike Saylor had cap put on his stock sales, and was fined something dinky, like $25,000). They got in TROUBLE for straying from doing stock-only deals with other companies, acccounting for the resulting revenue improperly, incubating startups, and generally straying too far from their core business. When the trouble came, it nearly got them delisted from NASDAQ.
How much of your life do you use free (and crappy) vs. paid (and decent)? Content, mainly.
When you start having to watch ads before YouTube clips, or when your word processor makes you sit through a 30 second ad before loading, you’re gonna be happy to pay.
See, that’s why I gave my 14-year old daughter a palmcorder for her birthday.
“YouTube is a flash-in-the-pan”
I agree somewhat. I think of Youtube to online media distribution as pornography to the VHS cassette. It was porn that made VHS tapes popular, and then other more mainstream providers began to see it as a viable distribution medium. Not to say that youtube is porn, (well, in a sense it is, providing quick fixes of entertainment/content), but I think it turned some heads (especially over at NBC).
But as far as loyalties go, youtube will have none if they charge money, because if they transgress from a free site to a pay site, people will drop off as is the case with Napster. Itunes promoted themselves as a pay site from the getgo, so people have no problem paying there.
As you note later, if $165M is ‘squeezed out,’ squeeze me out any day 😉
SalilM:
Fair enough. You think Google has stepped away from their core strength/business and they (and their stockholders) will have topay for that.
I thought a lot of MSTR’s problems were a direct result of Saylor’s gigantic ego (strategy.com was a good example, I did not know about this IVR with angel.com).
Ob.Macaca ref:
Sanju Bansal (COO of MicroStrategey) started putting more money into visible “philanthropy”, (sponsoring chunks of NPR in the morning), after the shit about MicroStrategy hit the fan. Coinkidink? I think not.