Is YouTube the Bubble Blower?

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Here in Silicon Valley, one the regular items of discussion is “Are we in a bubble, and if so, when is it going to pop?” Especially among the veterans of the dot-bomb, the exuberance around the technology industry, largely driven by the rise in online video and social networking, is causing no small amount of anxiety. After all, we’ve been through this before, and nobody wants to be the guy who didn’t cash out in time.

3rd Quarter Graph -- Ooga LabsJames Currier at Ooga Labs, a startup in downtown San Francisco, recently posted an interesting piece of speculation. Based on anecdotal evidence (better parties, bigger marketing departments, better looking people) he’s drawn the conclusion that we could be in the third quarter of the current boom-and-bust cycle typical of high tech, with the next step dependent on the business of one company: YouTube.

Currier’s suggestion, more precisely, is that if YouTube can figure out a profitable business model in time, it could extend the peak of the wave:

If a good business model cannot be found for YouTube… then maybe the party in our little corner of the IT world will end more or less on schedule in 18-24 months.

For all the high-minded digital utopianism, the Internet economy is primarily fueled by advertising. While there is some hope that video and other types of content can achieve profitability on their own merits, such as Break.com’s possible plans to charge for their videos, the current model that almost everyone is betting on is to bait the hook with content so that the audience will bite on the advertising.

When the economy goes south, advertising spending is often the first to be cut — and there aren’t enough funny pet videos in the world to stop that from happening. Still, YouTube’s parent has deep pockets, and lack of a fool-proof business model isn’t a dire enough concern to make the site flame out.

In the meantime, I’m pricing property out of state.

5 Comments

Jackson West

At some point, we’ll reach a singularity where there won’t actually be any products, just ads for ads. I call it “The Matrix.”

Tim

I wonder what percentage of internet advertising is by companies who are themselves funded by advertising revenue? I buy from you, you buy from me, we both book the revenue, but none is actually being made. That could go south in a hurry.

I recently saw a list of 10 biggest spending advertisers (across all outlets). 4 of them were media companies, and 3 of them telcos. If the Internet is going to make all of their products free, who will be left to advertise?

Tim Street

I was at an indoor party that http://flux.net/ threw last night. They brought in a GRASS FLOOR to create a “Backyard BBQ.”

I must have been channeling this article to Jackson as “Tonight I’m going to party like it’s 1999” took on a whole new meaning for me.

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