Meet The New Boss

Meet the new boss...
Andy Stetzinger
1-22-07

Everything is starting to get a little clearer for me today. With a fog that started in the third quarter of 2006, with Google purchasing YouTube for 1.65 Billion. I scratched my head and wondered what they were up to. Now it's all clear, and boy, we were wrong with what we thought.

The knee-jerk reaction was Google had lost their mind. YouTube was burning through US$ 1 million a month in bandwidth charges, and had no business model worth anything. The race to "figure it out" was on. Everyone struggled to come up with something to validate the purchase.

The "Facts" as the public saw them were pretty simple:

1. YouTube has 100 million-plus video viewings a day
2. Google has "the golden touch", not to mention AdSense

So, there is was in a nutshell. Google will put ads on YouTube and make a huge profit.

Not so fast. That didn't make enough sense. So, people looked deeper. What did Google get out of this besides a huge user base and 200 million-plus eyeballs a day?

The answer to that question turns out to be big name media companies.

See, with people going to YouTube to watch the best clips from last nights TV shows, Google could easily make deals with the big media companies. Look what happened when Comedy Central sent YouTube a demand to pull all CC content: a day later, it was back on.

Now the reason behind the purchase was clear - It's Google's back-door into the mass media market!

Still, something didn't add up. People weren't looking at the whole picture. To understand the purchase, you have to know some other things.

YouTube wasn't founded by a couple of scruffs. Chad Hurley's Father-In-Law is none other than Jim Clark of Shutterfly and Netscape fame. YouTube didn't need Google - Chad and gang were doing just fine without them. Google needed YouTube. Hence the billion dollar stock pricetag.

Google has also been buying up dark fiber around the country under different corporate names - taking a page out of Walt Disney's own book. Prices and suspicion never rose. Google is also buying large amounts of real estate close to power sources in small population towns.

Why buy the milk when Google could easily afford the cow? This boils down to a good Public Relations move. By setting up business relationships with backbone providers and purchasing large amounts of land in low populated areas, Google can appear of offer a future for tens of thousands of people.

YouTube is an easy answer to a question nobody has asked: What does Google need with those DataCenters and all that bandwidth?

Go ahead. Ask them. "YouTube", they'll say, "requires a lot of bandwidth".

You'll smile. You'll be happy. And you'll leave them alone.

Which is just what they want.

Let's look at some other facts though:

1. Broadband connectivity is more widely available today than any time before.
2. Internet usage will continue to grow.
3. Demands for bandwidth will increase as usage grows.

Your Internet Service Provider would collapse if every one of their subscribers logged on and used the full potential of their bandwidth. Just recall a few years back when the Starr Report caused such a slow down on the Internet, and it was only about 600KB (a little under 1/2 a megabyte) In contrast, movies online today run about 680 Megs.

Putting it all together, the plan is pretty clear. Google is planning on being THE Internet Provider.

Let's review.

1. Google buys YouTube
2. Google buys cheap, unused fiber (bandwidth)
3. Google buys cheap land by power sources (hydro, nuclear)
4. Google builds huge datacenters at those locations.
5. If asked "why", Google can point to YouTube's bandwidth usage
6. As demand for bandwidth increases, people become less tolerant with slow ISP.
7. Google offers faster access to the content and information users want.

It's all slight-of-hand, really. While everyone was trying to figure out the business decision behind the purchase, it was merely step one in a much larger process.

Once the whole process is revealed, the business decision to purchase YouTube makes perfect sense.

The questions we should be asking now are:

"Is Google going to sell, or give away The Access to faster content, and if they do sell, who do they sell to - The Service Providers, or The Consumer?"

That, my friends, is what we should be thinking about.