Last week, I speculated as to why Rupert Murdoch would have a difficult time acquiring YouTube. I also suggested that, with a rumored asking price of $1 billion, NBC Universal was the most likely contender to buy YouTube. But my thoughts were based mostly on reasons […]

Last week, I speculated as to why Rupert Murdoch would have a difficult time acquiring YouTube. I also suggested that, with a rumored asking price of $1 billion, NBC Universal was the most likely contender to buy YouTube. But my thoughts were based mostly on reasons having to do with financial/capital structural issues. With this piece, allow me add some additional perspective on the matter… but this time, from a more strategic point of view. In my view, the company that would benefit most from the prospect of buying and owning YouTube is Steve Jobs’ Apple Computer.

As most know, with the exception of iTunes, Apple has been a laggard when it comes to the web. But buying YouTube, Steve Jobs could leapfrog to the top of the heap. After all, he would end up with immediate presence within the ranks of the top 50 web properties (one that’s still growing at a rapid clip).

YouTube would also, for the first time, give Apple a platform to tap into the highly-coveted stream of online ad revenues, particularly within the fast-growth, high-CPM video ad segment. And by owning a leading platform for user-created content, distribution, and social networking, Jobs could fill in nearly all of Apple’s strategic holes (vs. web competitors) in one fell swoop.

But to assess the real (near-term, material) value of such a deal for Apple, let’s go back to iTunes. As we all know by now, the success of iTunes is rooted in its tight integration with the iPod, both in terms of its end-to-end user experience as well as its “razor-and-blade” business model. On the latter, Steve Jobs proved his brilliance by sacrificing digital music profits and making it up with sales of his high-margin iPods. The result has been market dominance… 75% market share. But sales are slowing, and he needs a new catalyst.

Enter YouTube. The online video phenom can be to the video iPod what iTunes was to the audio iPod. It’s not difficult to imagine mass consumers, especially tweens, downloading their playlists of YouTube “video snacks” and viewing them on the go with their video iPods.

And if YouTube is able to secure music videos from the record labels (offering them for free to consumers), not to mention any deals they may have with Hollywood (e.g. NBC), the promotional synergy/loop-back with iTunes (for both music and TV/film content) could be significant. In short, the brilliance behind the “razor-and-blade” business model of iTunes-and-iPod could be extended to YouTube-and-Video iPod. It also provides a roadmap for the much-speculated Apple cell phone and the WiFi-enabled iPod… both would greatly facilitate video uploading and sharing.

Jobs’ ego would benefit as well (not that he needs it). Just like Rupert Murdoch (via the “MySpace Effect”), such a deal would catapult Steve Jobs into the rarified stratosphere of being a “social media mogul.” Speaking of Murdoch & MySpace, a combination of YouTube and video iPod could also go a long way in staving off the increasing threat of MySpace Video.

So with a market cap of nearly $60 billion, should Apple go after YouTube?

Robert Young is a serial entrepreneur who played a major role in the invention & commercialization of the world’s first consumer ISP, Internet advertising (pay-per-click ads), free email, and digital media superdistribution.

By Robert Young

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  1. iTunes doesn’t have a Razor & Blades business model (which is give the razor for free and make money on blades). Apple makes money as you said on the razor (the iPod) and is keeping the price for blades (the songs) low.

  2. Interesting.
    He would probably have to convert to using Apple tech (Quicktime) but it certainly fits into all the other content creation tools Apple has…GarageBand, iMovie, etc.
    It would be a …we have the tools, we have the space, we have the pod…go create.

  3. Tito,

    Actually, offering the “master” product for free is not a prerequisite for a razor-n-blade strategy. All it takes is some level of subsidy pricing for the master/razor… which Apple clearly does with iTunes.

    Thanks for commenting.

  4. I thought about something like that for two french companies that are Dailymotion and Archos. The first can be compared to YouTube and the second to Apple Ipod.

    But, I thought a partnership and not an acquisition would be both profitable. They could create together an application that facilitate downloading videos and podcasts from Dailymotion to Archos products.
    I don’t think Archos can afford such acquisition.

  5. Steve Jobs does not like applications whose look, feel, and content cannot be controlled. Check out the podcast lists on iTunes – they are monitored for content and need to be approved by Apple. Or even if its .Mac effort – the templates, navigation, and controls are tight and limited.

    YouTube is by far an uncontrolled environment though recent deals with studios have created a semblance of copyright and an attempt at offering a more professional output. The moment there is too much control exerted, the people will stop using YouTube.

    There is no reason that Apple cannot include YouTube without buying them out. They can form an effort similar to the iTunes podcast and approve portions of content that are relevant. Including amateur and/or juvenile content is against the Apple ethos. In addition this is one reason Apple has remained successful – laser focus on consumer needs that mesh with Apple expertise. Thats why they have eschewed portals, internet ads, and other web efforts that have been popular and successful for other firms.

  6. Bottom Line: If buying YouTube would help sell more iPods/Macs/other hardware products, than not buying it, then Apple should buy it.

    Apple is not interested in selling ads. It is beyond their core competence or strategic interests. If they owned YouTube, there would be no ads beyond those for Apple products.

  7. While I agree that the concept is interesting, it simply will not happen. Apple doesn’t do a whole lot of acquiring to begin with, they’d be more interested in partnering besides, and as virtually every else has already said, they’d be annoyed by a) the use of flash instead of QT, b) the non-Apple look and feel, and c) the complete lack of control that makes YouTube worth watching. Just not going to happen.

  8. Apple is VERY VERY VERY conservative when it comes to debt and cash on hand. Overly so I think, but hey! Second, as has been said, YouTube uses Flash and not QT. Third the UI totally sucks. Apple would have to rip it up and redesign it. So in the end all Apple would get from 1 BILLION is a name/brand. I don’t think YouTube is in a position yet where it can’t be overthrown. So I can see Apple creating a something as an Apple site that delivers on what YouTube provides and seamless with iMovie, iTunes, and the iPod.

  9. You have a factual error in this entry, Robert.

    You say that Apple iPod sales are slowing.

    That’s inaccurate and misleading.

    Apple’s iPod sales growth rate is slowing.

    Sales are still increasing.

  10. Tom,

    Thanks for the correction… yes, it’s the growth rate that’s slowing.

    And to all who have commented on the low probability of such a deal (due mostly to Apple’s historical behaviour and actions)… I won’t disagree. That said, I do believe that (1) Apple’s informal alliance with Disney (via Steve Jobs) adds an interesting vector for analysis, and (2) the prospect of Jobs getting into this game is as unlikely as most thought was the case before he got into digital music with iTunes/iPod.


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