Image by websuccessdiva

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.

Looking for information on media organizations I found a really interesting work by Ming Hang called Media Business Venturing. It is a dissertation for a PHd about “how to organize venturing and why to choose a certain organizational mode for the development of new business”. Two approaches are used in this analysis: IO (Industrial and Organizational Theories) and RBV (Resource based view).

Adapting to changing environments is crucial for media businesses nowadays, and it is the only way to profit from new opportunities arising. Corporate venturing is the concept that summarizes all related to new businesses creation in an established organization.

RQ: Given the emerging business opportunities, (1) how do firms organize their
new business venturing activities in a structural dimension and (2) why do they
choose a certain organizational mode for venturing?

We all know how media has undergone great changes and challenges from both, internal and environmental factors. Media companies are looking for new revenue streams by stretching their competitive advantages and diversifying their activities/risks. Media compete in a triple market: content, audience and advertising.

New media business oportunities: internet, mobile, webcasting, gaming, digital tv and venture capital.

“Corporate entrepreneurship is the process whereby an individual or a group
of individuals, in association with an existing organization, create a new
organization or instigate renewal or innovation with that organization.”
(Sharma & Chrisman, 1999, p.18)

This work covers several business cases in a deep analysis: Internet Business Venturing and Mobile Media Venturing in News Corporation; the New York Times Company, FiOS TV Venturing and Online Gaming Business Venturing in Verizon Communications, Mobile Distributing Consumer Media Venturing in YouTube, Webcasting Business Venturing in the China Telecom Corporation.

After this analysis, his conclusions are:

Proposition 1: when the level of ‘economics conditions’ and the level of ‘resource conditions’ are both high, the hierarchical modes will be preferred by media companies while venturing for new business.

Proposition 2: when the level of ‘economics conditions’ and the level of ‘resource conditions’ are both low, the more market-oriented modes will be preferred by media companies while venturing for new business.

Proposition 3: when the level of ‘economics conditions’ is high and the level of ‘resource conditions’ is low, the hierarchical modes will be preferred by media companies while venturing for new business, if the venturing activities are primarily driven by the direct incentives.

Proposition 4: when the level of ‘economics conditions’ is high and the level of ‘resource conditions’ is low, the market-oriented modes will be preferred by media companies while venturing for new business, if the venturing activities are primarily driven by the indirect incentives.

Proposition 5: when the level of ‘economics conditions’ is low and the level of‘resource conditions’ is high, the hierarchical modes will be preferred by media companies while venturing for new business, if the venturing activities are primarily driven by the indirect incentives.

Proposition 6: when the level of ‘economics conditions’ is low and the level of ‘resource conditions’ is high, the market-oriented modes will be preferred by media companies while venturing for new business, if the venturing activities are primarily driven by the direct incentives.

It can be a bit difficult to understand those propositions without having read the whole book before. The conclusion is that media companies show unflexibilitiy when dealing with relatively small projects (low resources and economic conditions) and when having a complex initiatives they may adopt a hierarchical mode, but not always. In other words, media companies are not good innovation companies within themselves and their business model development may happen mainly through acquisitions. In some cases (like in News Corporation) it is reflected in this book how they deliberately prefer to allow others to move first, and then jump into the market paying the acquisition of an expensive monetary cost but saving the pain of a failed project.

Anyone working in media would more or less presume that these propositions are true by having a look to their own evironments. It is no longer a feasible to keep media businesses in the long term with organizations that are not flexilbe. Media must assume that change is not just merely about how to manage and adopt new techologies but a process that wont stop. Change is our new model, we must continuously be changing, we must be changing organizations on our own, and we have to permanently adapt in order to continue offering what our consumers demand. An organization that does not embrace change, that does not love change will die today or tomorrow.