A Billion Bucks for YouTube?

by on October 10, 2006 · 4 comments

Jim DeLong likes to talk about how strong intellectual property rights are necessary to allow small companies to do business with larger companies. As he put it in IT&T News this summer:

Without IPR, innovators have no way to deal with platform companies, who could simply take any ideas revealed and implement them. And even if the platforms wanted to compensate the innovators, they would be unable to, because any competitor could copy the innovation without payment.

The platform companies know it is in their interest to have innovators protected by strong IPR, because without these, people would not be willing to invest in innovative companies.

It seems to me that Google’s YouTube acquisition is a counterexample to DeLong’s theory. YouTube is an innovative company that secured several millions of dollars in venture capital and used it to create a billion-dollar company in less than a year. Yet as far as I know, strong IP rights have not been an important part of YouTube’s strategy. They don’t appear to have received any patents, and their software interface has been widely copied. Indeed, Google has been in the video-download business longer than YouTube, and their engineers could easily have replicated any YouTube functionality they felt was superior to Google’s own product.

It would of course be silly to claim that copyrights and patents are never important assets for a startup company seeking a corporate buyer. But I think DeLong seriously overstates his case when he says that entrepreneurship would be impossible without these assets. Like all businesses, most of the value in technology startups lies in strong relationships among people, not from technology, as such. Technological change renders new technologies obsolete very quickly. But a brilliant team of engineers, visionary management, and a loyal base of users are assets that will pay dividends for years to come. That’s why Google was willing to pay a billion bucks for YouTube.

  • http://weblog.ipcentral.info/ Noel Le

    The necessity for IP rights commensurates with the cost/time to innovate, the risk of misappropriation, and several parallel factors. These characteristics of innovation inform considerations of where we need broad vs narrow patents, higher vs lower obviousness standards, etc. Some argue, such as I do, that the IP paradigm scales not only to industries, but to technological spaces within industries.

    Thus to say that IP is important to small companies doing business with larger ones makes sense for industries with risky and expensive R&D, especially where development and commercialization/manufacturing can be modularized. In such cases, small firms need IP to license to gain access to the capabilities and resources of larger companies.

    The economic structure of capital and risk intensive innovation is what Jim Delong writes about in his summer article. Such lessons apply less to ecommerce companies that leverage distributional and informal input mechanisms with almost zero development costs, and little inbound licensing.

    It would not be quite right to generalize YouTube as an economic lesson for the non-importance of IP as much as an example of a company on one side of the spectrum where IP is less valuable. Thus painting YouTube as a universal form of innovation without IP is not right or wrong, but incomplete.

    Another reason not to prop up YouTube too much is that it has mediocre profit if any, and only recently signed deals with content owners. Until now, YouTube has been an invention, with acquisition by Google YouTube can become an innovation with great market or technological impact. It’s the strategic future market that drove Google’s paying price past $1B. The majority of the price tag, however, probably comes from YouTube’s user base and name recognition. We should also consider what Google knows based on talks with YouTube that the rest of us do not- perhaps some resolution of copyright issues.

  • http://weblog.ipcentral.info/ Noel Le

    The necessity for IP rights commensurates with the cost/time to innovate, the risk of misappropriation, and several parallel factors. These characteristics of innovation inform considerations of where we need broad vs narrow patents, higher vs lower obviousness standards, etc. Some argue, such as I do, that the IP paradigm scales not only to industries, but to technological spaces within industries.

    Thus to say that IP is important to small companies doing business with larger ones makes sense for industries with risky and expensive R&D;, especially where development and commercialization/manufacturing can be modularized. In such cases, small firms need IP to license to gain access to the capabilities and resources of larger companies.

    The economic structure of capital and risk intensive innovation is what Jim Delong writes about in his summer article. Such lessons apply less to ecommerce companies that leverage distributional and informal input mechanisms with almost zero development costs, and little inbound licensing.

    It would not be quite right to generalize YouTube as an economic lesson for the non-importance of IP as much as an example of a company on one side of the spectrum where IP is less valuable. Thus painting YouTube as a universal form of innovation without IP is not right or wrong, but incomplete.

    Another reason not to prop up YouTube too much is that it has mediocre profit if any, and only recently signed deals with content owners. Until now, YouTube has been an invention, with acquisition by Google YouTube can become an innovation with great market or technological impact. It’s the strategic future market that drove Google’s paying price past $1B. The majority of the price tag, however, probably comes from YouTube’s user base and name recognition. We should also consider what Google knows based on talks with YouTube that the rest of us do not- perhaps some resolution of copyright issues.

  • http://www.abc-acupuncture.com/baxqorav tramadol

    81e31de21f46 My homepage http://www.abc-acupuncture.com/baxqorav tramadol

  • http://www.abc-acupuncture.com/baxqorav tramadol

    81e31de21f46 My homepage http://www.abc-acupuncture.com/baxqorav tramadol

Previous post:

Next post: