Why Steve Jobs should buy YouTube

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.

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