Nowadays in digital services great product do not mean great business
It has very much been commented that YouTube was making loss for Google. Credit Suisse said it would lose 470 MM $ for 2009. From the beginning, this news has been difficult to believe, but I did not have arguments to doubt it. According to Telco 2.0, there is a set of indirect benefits for Google, but, still, where is the return on investment? From my view, even they made an interesting analysis; those arguments are still not explaining why Google makes such a huge loss (if it were true). There are some arguments in which I do not personally have the same view they develop. I will talk about them first, and then, I will expose what I think is a problem for the healthy development of digital products and services: our bias to analyze as businesses products that we love.
Argument 1. More eyeballs longer time will mean more advertising budgets.
This is a recurrent argument, more exposure equals more advertising and more $$. How much exactly? Is it enough to pay back costs? When will they have a positive return? Why more viewers will necessarily mean more advertising dollars?
Argument 2. Information about users may help to optimize advertising.
How much is it increasing advertising revenues? CPMs are so cheap nowadays that even the development of behavioral targeting is now not so clearly profitable.
Argument 3. Google profits went up, so they can afford YouTube.
This is more an opinion than an argument, but, ok, it is easier to understand that you make the bet when you have the power of doing it. But really, can you hold an investment that is making you to lose money just because you can afford it? Maybe, that would not be an investment but a cost.
Argument 4. Google is deploying network capabilities based in a superior scale economy.
Ok, this could be a strong argument to support why Google should keep YouTube.
Argument 5. It would eventually cut the middle men for audio and video contents in a supposedly future environment without piracy.
Again, we believe that first mover advantage will make a longer term difference. This is something not really demonstrated, and that did not happen even with MySpace (surpassed by facebook), nor probably with facebook (surpassed by twitter ¿?). In other words, it is not so clear that being first mover, even in a community network driven economy is such a barrier to entry nowadays.
Many analysis on digital products and services are still made from heart, goodwill and hope by all of us who are amazed and love all these products. We want them to succeed, so we try to find behind a great product, a great business. Great product does not necessarily mean great business. Trying to hide $ figures after faith arguments and supposed potentials is something we should be limiting when analyzing digital content businesses. Otherwise, we may continue to mislead investments. Our mindset should swift when we look at digital products as a business.
