Acquired - YouTube

0:00All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired. LaGora, the agentic operating system that is redefining how the world's best legal teams work. Yup, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. LaGora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

0:30So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review where you.

0:49drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Lugora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work, and this means that the pie can grow even as each individual task takes less time.

1:09And they recently launched LaGora agent offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And LaGora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early LaGora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over a hundred thousand lawyers on the platform from 1200 legal teams in 50 countries. And crazily they went from one million to a hundred million in ARR in about 18 months. Truly insane numbers. And that is the real test.

2:01Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in house at a company, you can learn more at logora.com slash acquired and just tell them that Ben and David sent you.

2:31Welcome to episode seven of acquired. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. Today we sit here on the eve of the announcement that Google is the most valuable company in the world to tell you about Google's announcement. Google announced that they were the most valuable company in the world. What?

3:01Google announced earnings and people are speculating that it might check the price. I haven't checked the stock price, but that Google's market cap might pass apples tomorrow. Ah, gotcha. So, Mr. Market will tell. Yeah, and in a steep contrast to what we normally do on this show, that is just conjecture and hypothesizing. We never conjecture on this show. We're going to talk about kind of an older acquisition when you look at the companies that we've looked at so far, Google acquiring YouTube. David wanted to take it away with acquisition history and facts. We'll do. So YouTube, this is a big one. YouTube was founded early 2005 by two former engineers and one former designer from PayPal.

3:59Part of the much belly who'd PayPal Mafia. And interestingly, we'll get more into this later. YouTube was one of the very first investments at Sequoia by another member of the PayPal Mafia. Roll off both of them. Just keep it in the family. So it was founded in early 2005. And then in November of 2005, Sequoia and Rolloff come in, they lead a $3.5 million series A. And then a few months later it was very early growth days having just released the product when Sequoia leads the series A. A few months later in December of 2005, SNL Remember the lonely island days on SNL this get lazy Sunday was comes out and Wait, so it only took us seven episodes to talk about Andy Sandberg here on a choir Ironic I know editors note David looks like Andy Sandberg. There should be no inside jokes in podcasting lazy Sunday comes out and a whole bunch of people

5:20like video their TVs and post it to YouTube and I don't know if this was an aggregate or just one of the versions of the clips of this clip of lazy Sunday generates 7 million views on YouTube which was huge. I mean like there were only 100,000 people on the site before them. Yeah, I think even at acquisition they had an audience of 72.1 million but they were reporting 19.1 monthly active users.

5:49So I mean, to get that kind of view count that early, and that was even, you know, I'm sure there was a lot of college kids like me watching it over and over and over again. Well, the amazing thing is thing about watching it on, you know, people filming their TVs like that, that's like what vines look like now. Yeah. Talk about a kind of history rewriting itself. So on the back of lazy Sunday, among other viral hits April 2006 the company raises an eight million dollar series be also from Sequoia with artist ventures which I believe led the round and by the summer of 2006 YouTube is has grown in July to about a hundred million video views a day which is pretty incredible and then

6:37And a whole bunch of problems that arose with that, which we'll get into in a minute. But very shortly after October 9, 2006, Google announces that they are going to purchase YouTube for $1.65 billion. Incredible. I mean, this is just over a year and a half after the found in the company, literally in a garage.

7:00They'd only raised 11.5 million in venture capital, so the multiple 11.5 million to 1.65 billion, that's what, 120 X-ing? Pretty incredible. I mean, this kind of stuff, and this was 2006. This stuff didn't happen in 2006. I mean, after the internet bubble, lingering after effects are still reverberating through the valley even a few years later.

7:30the idea that a company would go from founding to actually being sold to a real company, Google, not just going public with funny money in 18 months for over one and a half billion dollars. Even Instagram was that we talked about on one of our first episodes was such a splash of one billion dollars. So Google acquisition closes by December of 2006.

7:59In March of 2007, Viacom files a $1 billion lawsuit against YouTube, accusing the company, the directors, and I can't remember if Google was named in this suit or not, of knowingly and blatantly violating copyright laws and posting material like SNL as an NBC property, not a Viacom property, but like Lazy Sunday, knowingly allowing it to persist on the site even though it didn't have YouTube didn't have the copyright. So, and that began this protracted battle over content rights and YouTube that really was only finally resolved in 2014, seven years later. It was a whole series of dismissals and appeals and judgments, and then finally the biicom and Google settled in 2014. It was hard to believe.

8:58It is okay, so this lawsuit happens but which is you know, we'll talk about in and of itself, but there's this amazing byproduct of the lawsuit which is the disclosure process and we get to see like it's just public in the public domain all of this incredible material and testimony about YouTube about Sequoia's investment in YouTube about the acquisition so you can Find this online and we'll link to it in the show notes. As part of the discovery process, Google and Rolloffs, sorry, Sequoia and Rolloffs, investment memo for the Series A of YouTube is available.

9:41And it's a really incredible document. It is incredibly fun to read. I mean, I was just looking over at preparing for this show and the key risks that they identify in here could not be more candid and could not be more real of concerns. We're going to talk about this later in evaluating the acquisition and where the world is today and all that. But you know, key risks, competition slash defensibility. Like here we are, what, 10 years after the acquisition and Facebook is stealing video share. What I thought was really interesting, and we'll talk more about this throughout the show, and I think especially in the themes, but in the memo, Rolloff and Sequoia, when addressing competition and defensibility, they say the team will need to remain laser-focused on improving the user experience, which isn't what you would really expect when you think about defensibility. Like, in nowhere in this memo does it talk about network effects.

10:35And YouTube is on the surface, you would think network effects, defensibility through having all the content, which leads to all the viewers, which gets more content. But no, they're actually focused on improving the user experience. And that's not exactly how I would describe YouTube today.

10:55When I think about the things that make YouTube great, it has pretty much zero to do with the user experience of YouTube. Yeah. And in a lot of ways, YouTube has actually, I think, really failed. Like, who goes to YouTube.com and then discover something or searches for something on YouTube? No, you come through other channels and then you leave. Yeah. I'm often, well, this is, I want to say this for later, but I think it's worth talking about now. I'm a little bit bearish on YouTube.

11:24primarily because it's not a destination site. They're reliant on traffic from other channels, and those other channels, namely Facebook, where people go first to decide what they're going to be looking at are having their own platforms, and actively pulling people onto those platforms. And can drive traffic. So YouTube is effectively, you know, a super fancy CDN at this point. They're a place where the videos get hosted.

11:48where people don't necessarily rely on going to YouTube for discovery, what they should watch, or it's just uninteresting. Hosting that YouTube and Google pay for. Yeah, it's free hosting. And if there was a better place, I think people would easily throw it up on that better place. All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture.

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13:54So another thing that's really interesting about this lawsuit is we have there's a bunch of testimony from Eric Schmidt who was then the CEO of Google and As part of the lawsuit and he is interesting he testified that he told Google's board in the the days leading up to the acquisition and as they were working on it that he thought YouTube was worth about 600 to 700 million and that as the deal progressed Google decided that it had to pay more literally a billion dollars more to keep it from competitors And that YouTube had indicated to Google that quote had indicated to us that they would be sold is what Eric says

14:44Which is super interesting to see, you know, there's these content rights issues swirling around the company. There's the massive hosting fees that they were paying at the time and are still continuing to pay. And yet the growth was explosive. And it's interesting that they essentially put themselves up for sale. And that we have this testimony here which is really cool. Well, do you think, I mean, one way that I would interpret that as we are going to be sold is...

15:11We are going to go out of business unless we have someone that is financing all these lawsuits. Like, we have no options. Lots of a buy-accom argued. Yeah. And ultimately lost. Which I'd say, but yeah, super interesting. You've got this property, this product that is clearly, you know, incredible product market fit, growing like...

15:37I don't know anything. I think nothing that the internet had ever seen until that point. I mean, I guess Facebook existed then, so it was probably growing at a similar rate. And yet, had these massive existential questions that even though it was a huge price, leads them to actively try and sell the company only 18 months in. Yeah. And the interesting thing about the sale too, it's almost entirely stock. There was only 15 million in cash in the rest and stock.

16:07David, if you're Google, why do you do such a stock heavy transaction there? Well, I don't know at the time. I mean, I don't know how much cash Google had on hand. Presumably a lot, but this was 10 years ago. And whether they could, whether their treasury could, you know, how much cash they had on hand and how much cash of that was available and on US soil and not in. Yeah, maybe they had no choice. Yeah. But to me, I mean, like looking at that, Google was only going to go up and it's easy to say that now looking at the skyrocketing that it's done but if you're you know Larry Page you got to be optimistic there and you got to be able to see That your company's only getting it get more valuable it'd be interesting to go back actually and look at all these shares now and do the math and see What's the current value? It would also be interesting to look at yeah, we've mentioned Sequoia a lot in this show

17:08Both in the past and this episode but in particular because of this investment memo, you know, Sequoia is one of the largest shareholders in Google and I Don't know if they were still shareholders at that time but they have a history of keeping their public share holdings Which would be very interesting that the largest investor in YouTube Might also have been the largest or one of the largest shareholders in Google at the time of this acquisition Interesting indeed. Okay, so so so just to wrap up so what happened next 2006 time magazine names quote you person of the year, but the cover is YouTube and the theme of you and user generated content

17:54and the growth just continues on the product side. I mean, by May of 2010, so four years later, less than four years later, their up to YouTube is up to 14 billion video views a month from 100 million four years earlier. By 2013, YouTube has a 1 billion monthly unique viewers, visitors, and the growth has just continued since then.

18:22Okay, cool. So I've heard you say a lot about views and viewers. Gotta feed my family. Yeah. How do you feel about YouTube as a business? Well, here's what's really interesting and that's happened since then, especially, you know, we've done our episode on Twitch. Netflix, you know, has also been built.

18:41Well Netflix as a digital streaming service has been built during this same time Amazon stood up something from scratch in that time. Yep, you know and and YouTube is really one of the few if maybe only major video business Well YouTube and Facebook that are ad supported now And I wonder if it's kind of been proven that direct payments are a better model for video on the internet. Now obviously Twitch has advertising, but as we talked about, I think most of the dollar is flowing through Twitch, or in the form of subscriptions. Yeah, so you touched on two really interesting things there. One, in thinking about YouTube as a profitable business, I think last year, there's not a lot of good stats on this sense, but in February of 2014,

19:32they were doing about four billion in revenue but were pretty flat. I guess not flat as much as they were break even business. Yeah, four billion in revenue growing fast but after payments to content creators and hosting costs and ad sales costs and all associated stuff about a break even business, zero profit. And so in the last year estimates that are that they are a five billion dollar business but again still not a profitable one.

20:03The interesting thing to think about there is What is their average revenue per user and the information's pretty sparse on this But I think the latest numbers around kind of Facebook and Twitter are like somewhere in the seven to nine dollar range for for those social services that are that are ad supported It's probably in that seven eight dollar range maybe a little bit less because it's you know that the add you know that probably less because if in 2013 they had a billion unique visitors and if say they made five billion in revenue last year imagine that number of unique has only gone up since 2013 so you're talking about less than five dollars per per user yeah

20:49Yeah, so you can see why YouTube Red is a thing so YouTube Red is a service They announced last year that you can pay $10 and get ad free YouTube and it's their sort of answer for how do you get? You to the music that is on YouTube as sort of a streaming service for when you're not actively watching a video You don't want the ad interruptions all that so that's a $10 a month service on the one hand and I am gonna call this short-sighted but on the one hand They need to do that to make it a profitable business I mean it's been a 10-year experiment here since the acquisition and there's a lot of other Ancillary benefits that Google gets out of having YouTube but as the core business Not hugely profitable or profitable at all So you know maybe moving to this other model gives them you know more cash flows where they're able to be a profitable business on the other hand

21:43It flies directly in the face of YouTube as an ad platform and they're getting their highest value users, which are the people that the advertisers actually want to reach to not city ads. And to do brand advertising, you need enormous scale. I mean, Facebook and YouTube are two of the only properties in the world that can do it. And if YouTube starts dwindling the population of people, particularly on the you know, most affluent end that are actually seeing ads, they become a less valuable ad platform. So what we're seeing here as Google transitions to trying to make YouTube a profitable business with YouTube red is potentially a huge shift in the entire strategy of what YouTube as a business is. Yeah. I think that's exactly right. And you know, video as

22:40Incredibly compelling as it is and as large as it's become on the internet mostly thanks to YouTube and all of these services, you know Facebook video and Twitch and other sort of sprung up in its wake is It fundamentally though does have a different cost structure than other types of of content on the internet Yeah, I mean if you just compare this to Instagram alone, you know acquired for A billion dollars and then I think they projected it making three three billion this year what in the And the cost structure is different on two fronts. One, there's the hosting and then the delivery of the video, which costs a lot more than text or static photos. But two is the content payments. And YouTube has really been aggressively investing in this. And it's not just payments to the professional media organizations of the world. It's payments out to content partners that are once on Instagram, those people just post there.

23:39post their content or Snapchat, you know, they're posting for free. Free and on YouTube's paying. The YouTube's splitting 55% of the ad revenue out and paying it out to those producers. And you know, we know on Twitch, you know, lots of the most popular streamers have talked about how YouTube has approached them and offered them large payments, very large payments to stream on YouTube and they're streaming for free on Twitch. Yeah. That's interesting.

24:07I mean, the whole Twitch live streaming thing is interesting in itself, but even the kind of stored archive video that YouTube is, that's their bread and butter. I mean, Facebook has a product that is pulling people away in huge numbers because everyone's first step. And I think that the staff that I recently saw was 70% of Facebook videos are uploaded natively.

24:33That used to be people in that YouTube videos and it's just been this massive, massive shift. Yeah, pretty incredible. Well, I feel like we should move on to acquisition category but before we do one more quick aside that I want to throw in, this is a particularly fun episode because my very first job interview or interview for my very first job when I worked at UBS and investment banking after college, I was interviewing in January 2007 and this acquisition acquisition had just been announced and I did this as a case study in my interview I thought man This was gonna be like the best job ever to talk about like internet company strategy and media and like this would be awesome and then I learned investment banking was actually something very different but But now you get to do a podcast now I get to do a podcast about it. I also ain't great before we move on I I didn't fully

25:29I guess I want to come around at that last point. Calling it short-sighted, that's assuming that they're sticking with being an ad platform, and particularly a brand advertising platform. If there is some grander plan, I think it's short-sighted if that's the current business. If there is a grander plan to move to more of a Spotify-type subscription business, which we'll see if they can, whether that's dorm of the crazy margins that you have to pay out to content producers at that point.

25:59It's shortsighted in that they maintain that same advertising platform strategy. Yeah, the hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like the risks are real. Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI control tower.

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27:01because they've spent more than 20 years building the operational backbone of the enterprise. The workflows, governance, approval, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security. Service now already runs more than 100.

27:19billion workflows annually, and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates. And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out servicenow.com slash acquired and tell them that Ben and David sent you. Okay, acquisition category. Maybe you want to take it? Yeah, so I think the obvious one here is product as a reminder are self-identified, major categories are people, technology, product, business, line, and other. But I think I'm actually going to go with other on this one. And I think it's a little bit what you were talking about just now Ben.

28:17But I'm not unique in coming up with this and I was inspired by a few articles that I read in preparing for this show. But people have been talking for years now about YouTube as Google's quote, loss leader. And I think that's an interesting way to look at it because if you think about Google as an ad sales machine, which it is, much of itself serve, but a lot of it, they have a huge ad sales force and you think of YouTube as a part of the overall portfolio of products that Google's ad sales team is selling, even if the business itself isn't profitable as a business and the product has huge problems, but it's really enabled Google to have

29:09multiple types, you know, if you think about their core search advertising and ad words, and then the display network that they built up following the double-click acquisition, and then now with video and YouTube. I think it's an interesting, you know, like I said, quote, loss leader product for Google. Yeah, I actually just gonna go with other also for a totally different reason. They're able to bring Data that they're getting from the videos that people are uploading and watching into the Google search algorithm on all media types And I think that sure they could do what they're doing with Twitter now and embed kind of a past along search to YouTube and return the first couple videos But what they're doing with with the content on YouTube and the analytics and metrics of people watching these videos and understanding, you know the topical things that are going on into these videos

30:02is so much deeper than anything they'd be able to get with YouTube as an external company. So, you know, again, probably primarily the product, but I think other for both of those two reasons. And that also gets to something I want to talk about in a minute, which is embeds. Yeah. But we'll get there in a minute. One point I want to make here, so Google had been playing with the product for a few years called Google Video Search.

30:32before they acquired YouTube. And interestingly enough, they actually left it running for like a year or two after the acquisition in its exact same form where you could actually upload videos to Google Video and then left it up for much much longer. And it's interesting. Schmidt actually talks about this in his testimony saying that one of the reasons that they were so compelled to pursue YouTube was that it was clear that YouTube was growing way faster and had way better engagement than Google Video.

31:03Yeah, so what were they doing wrong? I mean, why did they need YouTube and why couldn't they do it with Google video? Where did they fail there? I don't know. This is a really interesting question. Part of me wonders if it is like, you know, kind of related to the Lonely Island lazy Sunday, like it kind of just got virality and it started taking off. And I mean, I remember I was in college, you know, when this was happening and one day in, you know, 2000 Six all of a sudden everybody on campus was watching YouTube. So do you think that's kind of interesting to think about that YouTube did better than Google video because YouTube by the nature of being a scrappy startup was able to like basically acquire a bunch of debt in the form of lawsuits because they were doing things like you know letting people upload all these illegal videos

32:00Primarily because they didn't have great technology to filter it out and really no means to but also like that was the thing that sort of got their flywheel going and once it was in motion They could do all sorts of things to sort of pay down that debt later on but fundamentally they had the users and they had content flowing in yeah, I mean, I think it's it would be I think it would be Probably wrong and at least unclear to say that part of YouTube strategy was to to illegally post content that they didn't have access to I mean, this is what the whole lawsuit was about and YouTube won the lawsuit, so You know legally the court to say yeah according to the courts But you know, I think it's unclear and like you know, we work with startups, you know like things are you don't really have a good handle on what's going on in the early days and people use your platform for what they use it for but I think it does illustrate you know the scrappiness the

32:58You know, the memorabileness of YouTube, you know, and the idea that that could like, plant in your brain as a concept of, I mean, so many of these things I want to talk about when we get to tech themes, like, streaming. That was not a concept that existed before YouTube, really. Yeah, I just talked to Justin Kant, no one wanted to watch. Yeah, well, I mean, the live streaming that we think of now, but even just...

33:20Streaming media. I mean, real networks was the thing. Obviously, and we're here in Seattle, but like most before YouTube, you know, and broadband penetration wasn't the, you know, basically 100% that it is now. Like people downloaded content and watched videos that they had stored on their hard drive. So listen to music or podcasts, you know, podcasts originally were downloaded into iTunes, right? The idea that you would stream something live. Put on your iPod with USB so you can listen to it.

33:48Yeah, exactly, right? I'm sure that's why we're sitting here now. Yeah, 12 years later in the medium is just barely taking off because yeah But but you know, I mean think about like YouTube was really able to popularize this and then and then the other piece of it I think is embeds Which I want to talk about in a minute, you know, I mean YouTube could benefit from this amazing Service that it offered that that clearly millions and millions and now billions of people love which is watching hosted video on the internet. But you didn't have to go to youtube.com. You had to go to google.com slash videos to discover and watch. That's true when it wasn't here. Yeah, I remember thinking like, well, what videos would I have that I even, it's like a naming thing. Oh, man. What videos would I have that I want to upload to Google video? I don't know.

34:41It requires some weird creativity that I don't, I don't. But you have a personal blog. I know what this is, like, you know, it's videos of stuff that I do. Yeah, or you have, you know, your own website about personal blog or whatever and you want to embed a video in there. Yeah, you do that and then, you know, if a user double clicks on it, they go to YouTube and then they learn about YouTube and they say, oh, you know, maybe I want to host my videos there or wow, look at that lazy Sunday sketch. Yeah.

35:08I have one more allegory that I want to make, I was thinking about sort of the debt you acquire in doing things that are like shady because later on it's going to be an untouchable flywheel that you're, you know, you've got so much cash that doesn't matter and you can deal with it. There's actually two things that just came to mind. One is LinkedIn just lost that lawsuit.

35:34Where the thing that they were doing that we all hate and that everybody notoriously rips on them for is like Somehow they can never stop emailing me and they've been incredibly invasive in the inbox and they took all my contacts and they invited them all to LinkedIn for me and that was user hostile and illegal and They years and years and years later now finally got hit with the penalty that was like I Don't know what it was in the neighborhood of like a hundred million dollars and the value that they gained from that and the early days and all that lock-in is way more but you know the horses way out of the barn like the race is over yeah i mean it's really interesting i mean i'm not uh i don't think either of us is saying we endure either that we endorse this or that

36:18Think a lot of these tech companies like explicitly are thinking about you know think about Uber and Airbnb right like Airbnb one of the helped bootstrap their supply side network with posting to Craigslist was that You know that was against Craigslist terms of service was that You know evil and Machiavellian of them like I don't know they probably didn't think about it that much. They were probably just trying to grow and not die and stop selling cereal right like Yeah, there's one more insanely good one that I heard recently that's quite a bit older. Microsoft apparently had this practice where they would sell you the rights to use MS-DOS, but it didn't matter whether you actually put MS-DOS on that computer or not. You were charged as a Microsoft customer for the number of CPUs that you shipped. Period. No matter if they had DOS on them or not.

37:16That did an incredible thing because that, you know, the companies then are thinking like, well, it doesn't matter if we put this on or not, we're going to get charged for it. So every PC leaving the door of the factory had MS-DOS on it. And then, once Microsoft had a legit monopoly on the entire computing industry, well, then the Department of Justice comes back and says, well, that particular sales tactic is illegal. But again, years, years, years, too late. In startups when you're trying to survive and grow, you know people say this but this is it in practice you know unfair advantages if you don't have one somebody else does and you know youtube had an unfair advantage over google video yep okay um i think we've kind of covered what would have happened otherwise like there was a massive problem looming for youtube someone else would have picked him up or they would have or they would have gone bankrupt um so yeah tech themes we've also covered a bunch of these but um

38:14But you know, I pulled I pulled three I have a couple others, but I pulled three out of the Sequoia memo that I thought Were that YouTube really illustrated that they identified you know one user generated content you had this kind of Wave that started with blogging with blogger in the sort of early 2000s and then it moved into photos, you know, you had photo buckets, shutter fly, and my space, and then early Facebook popping up of people starting to, you know, get this concept of sharing photos, and then you had podcasting taking off, and you had audio, and you know, it was kind of, you know, Sequoia loves these wave analogies, but then you can read the memo, and it's just there in black and white. You know, video is the next and potentially biggest piece of this wave that's coming.

39:11So that's one, two, continued broadband adoption. I mean, this would not have been possible without broadband. And then three, the quote is, wide proliferation of inexpensive video capture devices.

39:27Um, what was happening in 2005, 2006 was you had like flip camera man, that went so well. It's yeah, and you had digital cameras still cameras shipping with video modes, uh, and this was new and then and then shortly thereafter, cell phones happened, smartphones happen. Yeah. I mean, you think about when this acquisition happened, was it like October of 2006? Yeah. I mean, not even a year before the iPhone. Yep. Um, all of these things that all combined to, you know, in this this, you know, inferno to create the opportunity for YouTube. Yeah. And it's really interesting. I mean, I've been kind of ripping Google the whole time here and we'll continue to. But the, they made a big bet that people would move from watching their televisions to watching video online. And we weren't calling it cord cutting that. And we didn't know that we'd have these Netflix like subscriptions and things like that. But

40:22They were definitely making the bet that video on the internet is the future of people's attention. And they were absolutely right about that. Yeah, I mean, I don't have cable. Do you have cable? Nope. Not my adult life. Yep, me neither. I think it's time for conclusion. Yeah, it's interesting. The way that I sort of want to think about this is what else could Google have done if they wanted to capitalize on The trends we've been talking about particularly the one that I was thinking of this is a video on the internet is the place where people's attention will be and as someone who You know as a company that captures value from being somewhere in the value chain of people's attention of people's attention and where they spend their time primarily in the form of seeking out information it you know

41:20Google was making a defensive move that in the if that's how people are spending time in the future then we need to be able to put advertising in front of them on that time during that time to monetize it so what else could they have done Netflix wasn't really a business yet that looked anything like this that would have been sort of a silly acquisition They were trying with Google video and clearly couldn't do it internally and I It feels like a rebooted effort there wouldn't have necessarily been as fruitful as this acquisition. I don't know that they had a lot of other ways to capitalize on this wave. Yeah, I like this. And think about both then and today, what percentage of Google searches end in YouTube? I would imagine a pretty significant percentage.

42:14Yeah, it's pretty interesting and if and if Google were sending I don't know I'm gonna pick a number out of thin air but 10% 15% of Google searches I think that's seem feels reasonable to me end up in a YouTube Link and if they were if Google were sending 10 to 15% of its traffic to a non-Google property I mean, I guess it kind of does that with like Amazon Yeah Yeah, that's interesting is that bad for Google's business if they're I guess it's bad if someone gets big enough so that they actually become a destination site Where you go right to that homepage instead of using Google search for it or Facebook to discover it through what your friends and Facebook are surfacing to you Which are basically the two ways that people find things on the internet right now. Yeah, they're like they search on Amazon

43:03Yeah, well, I mean I even probably search products on Google that I know will come up on Amazon first and I'm I freaking have an Amazon smile button in my bookmarks bar so that I always know to go there so that code or gets the the money But it I like always forget to do it because I end up just searching for the product in Google because I know Amazon's gonna be the first thing anyway So Google is my front door when I know what I want and face because my front door and I don't know what I want so big hearted of you and such a fail I try What was the plan I was gonna make there? That is okay, if it actually let's go work off the hypothesis that a huge chunk of the traffic passing through Google goes to a single site instead of an aggregated bunch of little sites.

43:49That should be a problem because then in sort of a like Porter's five forces way that business gets power over Google and then people start going directly to that thing and they don't need like the retailer of Google anymore and they can just get their their material directly from directly from YouTube YouTube has been owned by Google for 10 years and they still can't manage to make youtube.com slash a destination site like I don't know that that actually would have been threatening to their business. Yeah. On the other hand, you could argue that Google really had no motivation to invest in doing so and had YouTube remained independent, which as we kind of established was impossible. But let's imagine they could have, you know, would product-oriented founders have led that company to, you know, something that looks like Twitch? And what's going to happen to Twitch in the next 10 years?

44:49Yeah, that's super interesting too. So, I want to render my conclusion. It's a C. Wow. Is that our lowest grade yet? Certainly mine. What did we give Siri? I don't remember. It's gonna be minus. Okay, so for me... Oh gosh. I kind of... Part of me really wants to split this into two pieces.

45:17And so I think I'm going to do that and give a grade for each, but we have to have just one grade. So I'm going to ultimately render a final grade. 50% your show you do. Yeah. Well, thanks Ben. I really appreciate the trust here. So I think as a, I'm going to take first as a business YouTube. Unfortunately, I don't think has been a particularly good business.

45:48as we've established, you know, we're 10 plus years into the company and revenues are great, but profits are basically zero. And maybe they're things that, you know, they can invest in to change that over time, or Google could have done differently. But, you know, a $5 billion revenue business with a $0 margin is not a great business in my view. Fine, you start one.

46:12Yeah, right I'm a BC my job is to judge other people's businesses not to you know do the hard work of actually building them. It's great So you know on the business side, I think this is a gosh, I don't know C minus maybe I mean, yeah, you're right like I can't build a five billion dollar business like it's freaking hard, but in that 1.65 billion is just the beginning. I mean think about the operational cost of pouring more money into this business over the years and people and content investments and all that but I just don't you know it's not a great business by great business standards then I think the other lens I want to look at this through is the product lens and this one's super interesting because like YouTube is not a great product either like it's really crappy in a lot of ways like as we've

47:06been discussing I mean maybe folks out there do but like Ben and I don't go to youtube.com very often I'd probably do occasionally but only if I'm looking for a very very specific thing and you know and it's still kind of ugly the site and they've totally missed out on innovations like Chad and I don't think I've ever opened the app directly I've only ever been kicked into it we even talk about mobile but yeah right you know it took them forever to figure that out and they're kind of like okay now But just on the like pure innovation side and I've talked about this already the concept of streaming media and yes it existed with real networks and others before Before YouTube, but really working and working with video and working at scale

47:54It changed the world, right? And then the second one being in beds. And in beds is a double edged sword because as we're talking, as we've talked about, when you can embed your content on somebody else's, on other people's properties, why did they go to your property? But as a concept, it's pretty amazing. Awesome. As a site owner, I don't have to host and...

48:18and do figure out the codec and the delivery mechanism for all my own videos. Basically, it upgraded the internet, YouTube upgraded the internet, and I don't think that's an exaggeration. Yeah, it's an infrastructure layer that didn't previously exist, and then was just totally off the shelf. Oh yeah, I'll just put my YouTube video in that blog post. Yeah, so, and, you know, for these... Not to mention to your first point when you change the world...

48:42There's a whole category of people that are YouTubers that are making a living doing that and a whole, you know, generation of people that know those people as their celebrities. I mean, it like this is a cutie pie, cheesiest thing, but it totally, totally democratized video creation and becoming a star. Yeah, and, you know, and for that reason, I think this product side is like really hard. Like it's been really disappointing and a big failure on several Product fronts however on like the core things that like it is just knocked it out of the park so I give it an A- on the product side Overall, I'm gonna mash this up into a B for Google because I think you know I could be wrong, but I think if you asked Larry and Sergey and Eric if they could go back to 2006 and would they spend 1.65 billion dollars for YouTube? I think they would do that all day every day

49:40Yeah, I mean also, just on their personalities, right? I'm not gonna call it a moonshot, but it sort of falls in the vein of like, what if anybody could make movies and then anybody in the world could watch them and this idea was not as fathomable in 2002 and obvious as it is today, right? The world a couple of years before YouTube compared to the world now, it sort of does look like a crazy moonshot. And if they can do that and it doesn't at least cost money to run, There we are. Cool. Thanks for joining us. See you next time. All right listeners. Now is a great time to talk about one of our favorite companies, Statsig. Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

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