Purchase price of $32 a user

The bubble is swelling up again, and we have news about Google Inc. trying to buy YouTube.com for a price of $1.6 billion. According to the news article, that works out to $32 a user for the total userbase of approximately 50 million. So, essentially, Google is considering spending $32 on people like you and me to use their FREE service. Am I the only one who considers this ludicrous?

First off, YouTube is still not profitable. How is it going to profit when the only source of profit is text advertisements that no one likes to click? Let’s consider that Google would come out with a revolutionizing technology to embed ads within the videos for a minute. Wouldn’t that take away from the whole video sharing experience? These videos are generally very short. There’s no way you could possibly insert an ad in the middle. You could insert an ad at the beginning, but that is annoying, and I doubt a lot of people would enjoy that. Ads in the end are nothing more than the useless text ads/AdSense ads. Hence, the business plan for profitability is going to be a hell of an exercise. Of course, it would be dumb to imagine that Google would rely on just this service for being profitable. It is more of a mechanism to get users hooked to their web services, even if that means subsidizing it through other profitable ventures…like Adwords!

This brings me to the second point. So, Google is trying to either gain more users or not let go the current ones. Wait, there’s a problem here. Just how many users would stop flocking around Google just because they have to use a different website for sharing their videos?! How is the quality of Google’s core product – search, related to its capability to become the best video sharing website on the Internet? You ask, what about the challenge from other portals like Yahoo! and MSN? The simple answer is that none of their video sharing services is profitable either, and I strongly doubt they even consider themselves in the same league as Google when it comes to search traffic.

So, the fight is essentially about who gets the most overall Internet traffic. And, winning the fight makes sense only if you know how to make money out of it. I am not sure how that is going to pan out, nor am I thorough enough to predict the future based on past events, but it does sound stupid to me to be paying that kind of money for a user who isn’t even in the same continent.

I am not even going to talk about the legal and copyright issues surrounding any kind of media sharing service/community. All in all, this sounds a lot like eBay paying a ton of money for Skype.

I could also use a primer on valuation of money losing websites!

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