TECH TALK: The Rise of YouTube: A Big Deal?

In the world of technology, every so often comes a mega-deal which jolts everyone out to their comfort zone and makes them think hard about the future. One such recent moment was when I read on Friday night that Google was in talks to buy YouTube for $1.6 billion. By any measure, this would be the harbinger of a huge shift in the Internet. It would herald the coming of age of both video and user-generated content. The deal may or may not happen. But the very fact that discussions are underway is an indicator of how things evolve on the Internet. YouTube was almost an unheard-of company at the start of the year!

It is just over a year since eBay bought Skype. To be precise, that deal took place on September 12 last year. I was in Rajasthan in a dharamshala without electricity. I read about the $2.6 billion deal on my mobile. Skype had the users but little revenue. A few months before that, News. Corp had acquired MySpace, a social networking site, for $580 million. Just a few weeks ago, there were reports that Yahoo was in talks to buy Facebook, a college social networking site, for a reported $900 million. And now, YouTube. The era of mega-deals on the Internet is coming back.

All of these companies had little revenue. What they had done successfully was win a category. In each case, the acquirer seeks to build a dominant position in an emerging category. For Skype, it is person-to-person VoIP. For MySpace and Facebook, it is social networking. For YouTube, it is video. In fact, the two hottest trends of 2006 are social networking and video. YouTube has smartly built a community around video.

This is what the Wall Street Journal wrote: An acquisition of the closely held company [YouTube] would catapult Google to the lead spot in online video at a moment when consumers are rapidly increasing the amount of time they spend viewing video clips online, and Internet video advertising is booming…Like Web browsers and search engines before them, YouTube and social-networking sites are recognized as front doors to the Internet where companies can grab users’ attention, and to try to link them to other services or hit them with marketing messages.

It is a time of dramatic evolution on the Internet. Social networking sites and user-generated content have combined with Web 2.0 technologies to give a fillip to innovation. Multimedia is now easy to create and distribute over the Internet. (Just the other day, I watched a few clips from an old Hindi movie on YouTube sitting in Mumbai.) Users are also more involved in rating and reviews, and help good content rise to the surface, solving, to a certain extent, the problem of discovering new and interesting content. It all makes for a fascinating future. Any surprise that YouTube is up for sale?

Tomorrow: Googles Interest

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Rajesh Jain

An Entrepreneur based in Mumbai, India.