October 12, 2006

Could YouTube have come from a large company?

Filed under: google, media, video, web 2, web 2.0, YouTube — Rakesh Agrawal @ 4:38 pm

YouTube is clearly one of the leading innovators in the online video space, dramatically transforming not only the way people consume video content on the Web, but also what kind of content they consume. You don’t need to look any further than this week’s purchase of YouTube by Google for $1.65 billion.

Could YouTube have come from a large company? Let’s take a look at some of the questions that would get asked along the way:

  • Will we get sued for copyright infringment? Will users upload pornographic/obscene/hate content? Much of the original content that drew users to YouTube was not uploaded by the copyright holder. Large companies are much more averse to the brand risk that comes from being associated with user uploaded content. For startups, a controvery has significant potential to drive awareness. (Think of the Lazy Sunday clip from Saturday Night Live.)
  • What’s the ROI? Will this help make the quarter? Streaming video in the volumes that YouTube does is extremely expensive in terms of both bandwidth and processor costs. The revenue potential is unclear and down the road. Resources can usually be allocated to projects likely to meet this quarter’s numbers.
  • Will this upset our partners or cause channel conflict? According to the Wall Street Journal, Target sent a letter to studio executives expressing concern about studios partnering with iTunes for digital movie downloads. Target controls 15% of big studio DVD sales.
  • Can it scale to 40 million people? Large companies have a tendency to build for enormous scale from day one, increasing the upfront development costs and the time to market. In many large companies developing a prototype that serves 1 user takes nearly as much effort as developing a full-scale product that serves 40 million.

Given all of these challenges, it’s unlikely that something like YouTube would originate at a large company.

But large companies have learned one big lesson from the music industry: let the startups serve as your free R&D divisions.

Instead of the sue-to-kill approach the RIAA took with Napster, studios and TV networks have been more tolerant of this generation of startups, watching and learning from companies like YouTube. The downside is that by ceding innovation to startups, they’ve created a formidable competitor.

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  3. [...] Startups in general tend to underestimate risk. Big companies, consumers and media overestimate risk. While startups executives are rewarded for taking risks, most execs at big companies are rewarded for avoiding risk. It’s risk taking that allows for new businesses to emerge; it’s unlikely that YouTube would have come from a large company. [...]

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  4. [...] fair use and first-sale rights, Aereo is trying to push the envelope. I’ve argued before that innovation like YouTube would never come from inside a large company. Once companies get to a certain size, they become risk averse as lawyers tell them all the things [...]

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