A $1.65 Billion Reason For Being Number One

In the business news last week the most popular Internet search engine has been paired with the leading video sharing site as Google purchased YouTube. In a conversation with a colleague, he noted that $1.65 billion is a lot of money to pay for any company. He wondered if, with all of Google’s brain power, they couldn’t have come up with their own service instead of buying one.

Probably they could, but should they have?

So far, there has been a fair amount of skepticism.

After all, a lot can happen in online video over the next few years. Microsoft is beginning its own video sharing site, Soapbox. Meanwhile, MySpace still ranks higher than YouTube–at the time of this writing Alexa ranks MySpace as #6 on the web; and YouTube as #10 and MySpace offers video. It’s even possible that the traditional television networks, which are starting to expand online (ABC.com now delivers complete episodes of “Desperate Housewives” and “Lost”), will also enter ithis newest medium of user-generated video. Think about it: reality TV and televised talent shows aren’t all that different from the 15-seconds-of-fame world that YouTube has created on the Internet.”

Google’s YouTube Blunder
Bill Wise, Media Post Publications
Monday, October 16, 2006

What’s MySpace known for? Video sharing? No? Then the fact that it “offers video” is irrelevant.

Truth is, YouTube is popular because it’s a video sharing site. It’s the video sharing site.

Then there’s all that television content that we know is going to migrate to the web. Care to bet who’s already positioned in the minds of viewers as the logical place to look for that new content?

What about the sum Google invested in purchasing a 67 employee Internet start up? I’m not quite sure that this is a valid concern.

Here’s a parallel: a friend of mine just purchased a home in Southern California. He’s got a fixed 30 year mortgage at an on roughly half a million dollars at an attractive rate. In other words, he can afford to live in the home he purchased and never will have to face debt-collecting companies like arvato iva.

Yet, it sounds so much more dramatic to point out that he’s just taken on $500,000 in debt.

The purchase price is less important than Google’s ability to monetize their investment.

We’ve already discussed the biggest advantage of being first: people remember you. And since shoppers tend to buy brands in roughly the same proportion they remember those brands, being the first name consumers think of in a given business category creates a huge marketing advantage – a mental position that’s nearly impossible to transfer to another company.

The easiest way to create that top-of-mind position is to actually be first. In fact, to be so much the first that the company creates the category.

  • The hot sauce category didn’t exist until 1868 when McIlhenny began selling red pepper based Tabasco Sauce. What’s the leading hot sauce today?
  • There was no demand for condensed milk until Carnation brought it to market in 1899.
  • Until the famous Kitty Hawk flight in 1903 there were no airplanes. By 1909 the Wright Company was manufacturing them for the U.S. Army, and by 1910 for the American public. Most people have never heard of Leroy Grumman or Allan Loughead, but every kid knows the names of Orville and Wilbur Wright.
  • Until Otis Corporation developed and started marketing a moving staircase, only a few people had seen one a novelty ride at Coney Island. Otis’ name for the new people conveyor? Escalator, from the Latin scala (step) and elevator. What is every such device called today?
  • The Personal Data Assistant market was created by Jeff Hawkins who founded Palm Computing and introduced the PalmPilot in 1994.
  • Google was started in 1997 and used a totally new search algorithm: ranking of inbound links. Microsoft started its own search site in 1998. With all of Microsoft’s resources they never caught up.
  • Until 1999 when Research In Motion marketed the first wireless handheld computer which supported e-mail, mobile telephone, text messaging, internet faxing, web browsing, address book, calendar, and to do lists, had anyone ever heard of a Blackberry?

When a new product creates a whole new category in the minds of shoppers it gives that product the advantage of being the name associated with the category. “Would you pass the Kleenex before you Xerox this page?

A company is more than its products. Ask any shopper. A company is also corporate culture, history, image, and interaction with its customers. So, while it’s possible to duplicate the product, it’s nearly impossible to replicate the customer experience.

It only took ten weeks for Wal-Mart to shut down “The Hub,” its own version of MySpace. You can probably imagine the planning meetings in which someone in corporate marketing (someone who didn’t have a clue as to what motivated MySpace traffic) decided it would be simple to create a social networking site, and then to convince the sites users to create shopping lists of their most desired Wal-Mart items.

But, our question was should Google have purchased YouTube, or created their own service? Truthfully, Google had already created their own service with Google Videos, but they’ve now managed to secure the better-known competitor, too. The merger of YouTube and Google Video will undoubtedly make them the most recognized brand in downloadable video.

Was it worth $1.65 billion? History will show the rate of return on investment, but Google can afford the risk, and in my opinion, should be taking it.

What are you doing to be number one in your market?


  1. James A. Warholic

    Hello Chuck,

    I’ve been reading your postings for quite some time and I must say that You Tell It Like It Is and Do It With Style. Your analysis seems to be the contrarian of what most are talking about in the news today.

    Google has much to gain from this deal and in my opinion has little to loose. Advertising alone will pay for their purchase of YouTube. While copyright videos remain a concern for the television broadcasters, I believe that they will see the dollars before their eyes, and make a change in their thinking. Imagine an opportunity to reach targeted audiences with some sort of revenue sharing programs in place, as videos are viewed online. The business is always about the money. Napster was shut down, but that did not stop the illegal downloads. In fact with the pressure the music industry put on Napster to shut down, Apple filled in where Napster left off. There was an interesting story about how the owners of Napster were trying to do exactly what Apple ended up doing. We could say that Napster was ahead of their time.

    My personal opinion is that the networks and other video production houses will not make the same mistake that the music industry did. The music industry was sitting in a comfort zone, (fat and happy) the selling of CDs mode at the bricks and mortar companies. They did not have the insight to see the direction that the Internet was headed. Now with iPods and USB memory sticks that can plug in to new car stereos, consumers are buying less and less CDs and more and more MP3s online.

    As the saying goes, “Information wants to be free.” Marketing and advertising today are changing at a fast clip. Television used to be the only video market for adding commercial content. Now, with the Internet, and more specifically broadband connections, consumers all over are doing more online than ever before. That tread is not likely to change. The networks I am sure will see the writing on the wall and will subscribe to a plan that will keep them in the revenue loop.

    Thanks for your postings. Always enjoy and learn from them.


    James A. Warholic
    President, Professional Web Services, Inc.

  2. Daisy Mursalim

    I too wonder Why Google, such a big company, would purchase other company’s product instead of creating it.

    Is it they want to take over the trend, instead of create another one, which may not works, and they take over the
    brand and lead with no bigger competitor, what do u think?