Wednesday, October 12, 2005
YouTube - Miniprofile, and Media 2.0 Market Evolution
OK, by now you've read Om and you know that YouTube's gotten funded at a $20m valuation.
This is interesting. I think people are thinking about this the wrong way around. Sure it's a bet, but that's what venture investors do. The question is: can YouTube realistically be valued at $200m within the next few years?
How should we think about this? Well let's begin by noting that this works out to revenues of ~ $20m, if we use a rough average of current Net EV multiples (Yahoo, eBay, etc).
Does this seem doable? Let me give you some context. Weblogsinc, ~ $1m; Facebook, ~ $2-3m, Skype ~ $60-$70m.
Let me put it another way. If YouTube achieves 1m users - webloginc style traction - that's $20/user in revenues necessary to achieve a nice return. That's a pretty ambitious number. But if it achieves Skype style traction, revenues/user necessary to achieve a nice return drop to less than $1.
Now, if video can be monetized with contextual/profile-based/etc ads, because it's a richer medium, given current text contextual ad rates, achieving this level of revenues/user - less than $1 - is a no-brainer.
So this valuation hinges on YouTube becoming one of the first big Media 2.0 plays, in the sense that it achieves a fairly wide penetration. Is it an expensive valuation? Maybe a little bit. But the thinking behind it is pretty solid, as I hope I've shown; the bigger point is that the bet is really kind of all or nothing.
What I do question about this is whether or not it's a bit early to have this kind of confidence in YouTube; someone will qwn this market, but will it be YouTube? It's traction is accelerating, but I don't think there's a clear signal yet.