Why Steve Jobs should buy YouTube

43 Comments

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.

43 Comments

E. Ortiz

List for us please all the companies that Apple has acquired up to this point. Given the fact that 95% of acquisitions fail, perhaps a measure of Job’s business accumen could be found in not taking your advice. What is YouTube other than a bunch of clowns juggling trifles? Is there value here other than our easily escaping attention? This value, certainly, could be re-created from a position of true business leverage; something SJ certainly understands. I would be surprised to see anything of this sort come to pass.

steve

Who would want to buy this hideous site and bleed millions voluntarily? YouTube will be gone before the end of the year.

Johnathan

I agree with the above comment – the best idea would be for Apple to buy Real. They can use Real’s Windows-based expertise to optimize iTunes on Windows, and integrate Real’s audio & video subscription business into iTunes.

Real is already moving most (?) of their Rhapsody audio over to AAC format anyway, and Apple could simply support RealMedia’s other codecs via a QuickTime plugin.

Real would also buy Apple a connection to the Linux community. Perhaps this would finally allow Apple to bring iTunes to Linux.

TheMAc

Clearly you don’t understand Apple or even know anything about them…yes it’s interesting your idea..but not for Apple…Utube is like napster..it’s great until they start charging…$$$…then it’s over… look at napster now there so done…

this idea would only benefit the customer..getting free video on there Ipod …useless to Apple ..Apple is not a software company believe it or not that is why itune is free…they are a hardware company..and there are great at it…

peace…

orange

Do you think Apple can justify YouTube purchase to Wall Street?

Seriously, are you helping YouTube to find a buyer? :-) YouTube can get $1B, but they will go for an IPO.

Ted

This is a great article because it makes you think about Apple entering online video.

The best points are all about how cool it would be for Apple to have a huge online video presence.

And I think they will– but not by buying YouTube but by creating their own Youtube. Not only would they add more content for their ipods, but they’ll also make it easy to share content you’ve created via their laptops, iphones, future handhelds, etc.

Will it ever have the overall reach and advertising power of a YouTube or Google Video? No, but it will reinforce the overall strategy which has always been based on the hardware. Plus the Mac audience is already in the professional content creation business, so the quality of stuff they ‘control’ will be higher anyway.

tf

Bad premise with serious flaws:

  1. Why? What is the compelling reason to own a social web site? Is it just because it’s trendy and people like them? I see no reason.

  2. Likewise, why does Apple have to get into ads? EVERY one of their products is profitable. Even iTunes even if it’s only a few million per billion sold. Apple does not have to extend out into all markets or chase Yahoo, Google, MS, etc… They never have and never will.

  3. Even if Apple NEEDS a social web site for ad revenue, why do they need a brand, a name? YouTubes are popping up left and right… it’s only value is the brand name. Apple could generate this themselves overnight as they did with the iTMS even though Napster had the name and brand.

  4. YouTubes recent “talk” about Music Videos is just that, talk. How does Apple benefit from free content that isn’t highly portable and tied to a non-Apple infrastructure and format?

  5. What does Disney have to do with it at all? I don’t see how that’s interesting at all.

  6. Some of us thought it was quite likely that Apple would move into media distribution. It wasn’t surprising to some of us that they created the iTMS.

  7. I prefer Apple not populating everything with ads… I want to use and pay for services which do not bombard me with advertising.

Etc, etc, etc…

pwb

I don’t think Apple + YouTube makes any sense at all.

However, I do think Apple acquiring Real would be huge. For around $2b, Apple would get $400m in revs, $130m in profits and 2.5m paying content subscribers. Migrate everyone to QuickTime and finally put RealPlayer out of its misery. Integrate Rhapsody subscription service and users over to iTunes. Add a nice little game business. And the event where Jobs and Glaser bury the hatchet and announce the deal would be priceless.

Gert Steens

Most of the music on iPods is NOT from the iTunes-MusicStore. It is legally and illegally copied mp3s. In that light, owning the YouTube platform may not be required for maintaining the iPod’s dominance. Apple never owned LimeWire or Kazaa, but very much benefits/benefited from their popularity.

Isn’t the success of the iPod for a large part based on the success of iTunes-The-Software which so handsomely helps me navigating my music collection, and seemlessly integrates my at-home and on-the-go availability? The iTunes Music Store only functions as a “Look, It’s Legal!” shop window for the iTunes Desktop-iPod ecosystem.

for Apple, rather than focussing on the youtube business model, it appears worth making sure that whoever owns and exploits youtube makes it 100% compatible with iTunes desktop software. whether ownership is required, i don’t know.

Maria making pictures

Yes I agree with you, Steve jobs should buy Youtube as fast as he can. I think he will enjoy the brand with a lot of passionate users, who create content for free.

Thank you for sharing this story with me !

mark

To dave mcclure: If Apple was interested in selling ads, it has had ample opportunity to do so with .Mac and iTunes (both portal and within the content itself). Yet it has steadfastly refused. The only place where non-Apple ads appear is within podcasts and those are free and not hosted on Apple servers.

Apple seems to have drawn a line: Content owners can give away content for free, paid for by ads at their own sites; while Apple will sell the same content, without ads, at a price.

Sramana Mitra

This is not going to happen. Jobs will never attach his name to crap content like what 99% of YouTube circulates.

Read this: http://sramanamitra.com/blog/344. The company to acquire YouTube is Comcast.

YouTube is essentially a bandwidth and storage play, with a little bit of not-very-complicated software on top. It belongs in the arms of a bandwidth provider.

Pecos Bill

YouTube is really, really nice. What profit do they make? Sure, they get ad revenue, but are they profitable? Their bandwidth charges are probably astronomical.

Aly

One thing is for sure, if Jobs did invest in You Tube, he would instantaneously silence a lot of the Web 2.0 naysayers and create a frenzi of online community investments…as if it weren’t a frenzi already.

Simply because it would be so completely out of character for Apple.

Josh Hyde

A compelling article. I wonder how this whole video thing plays out given Jobs’ relationship with Disney. Unlike when the iPod came on the scene, Jobs has an interest on both sides of the video biz (content and hardware). It could prove to be difficult for studios to look past that he is on the board of directors for Disney and is CEO of Apple. But then again, studios are greedy and Jobs can help them bring in the money.

Randy Stewart

This will never happen, but it’s fun to talk about. Apple has a long history of not doing big acquisitions (NeXT excepted). Fact is, Apple could (a) build a crappy version of YouTube that integrates nicely into iLife, iPod and iTMS or (b) just sit back and wait for one of the numerous companies falling all over themselves to get onto the iPod to make a service that works with the iPod and iTMS?

Matthew

Couldn’t disagree more. Apple and YouTube are a poor match at the current YouTube at any valuation.

First and foremost, the quality pushed though YouTube is not anywhere close to meeting Apple’s standards. Frankly, YouTube is low-rent. Increase the video quality and the the already notoriously high burn rate at YouTube increases exponentially.

YouTube is also an concept that can easily be duplicated. They have a brand established, but Apple outclasses YouTube’s brand immeasurably.

No there’s no advantage, in my opinion, in Apple buying a company like YouTube.

Apple’s going to get deep into online video, it’s just going to take a bit more time than it took Apple to get deep into online music.

dave mcclure

great analysis robert :)

mark: “If they owned YouTube, there would be no ads beyond those for Apple products”

that seems like a short-sighted statement of absolutes… on the contrary, it’s obvious Apple covets the larger media market(s), and advertising is a very likely revenue opportunity for those markets.

while i wouldn’t assume it’s the default scenario, neither would i say it’s off the table for apple to make a move in that direction… particularly if they want to own a stake in the video market.

Stefan

Well, I have owned a number of Ipods (girlfriend is addicted to them) and I can tell you that they are just really F*^& expensive blades for us. With 20k songs she doesn’t buy much music anymore, just ipod after hard drive failing ipod…

Robert Young

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.

Tom Mornini

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.

Jeffsters

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.

Bob Aman

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.

mark

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.

rajesh

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.

Maher

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.

Robert Young

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.

PXLated

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.

Tito

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.

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