Every company has a story. Learn the playbooks that built the world’s greatest companies — and how you can apply them as a founder, operator, or investor.
Wed, 03 Feb 2016 17:00
Ben and David test the widely-held belief that YouTube was one of the most successful tech acquisitions of all time. In today's world of next-generation video platforms, mobile video, streaming, and chord-cutting, was it actually a great purchase by Google?
As discussed in the show, here is Sequoia's original YouTube investment memo - a rarely-shared gold mine for anyone interested in startup investing.
Our presenting sponsor for this episode is not a sponsor but another podcast that we love and want to recommend called the founders podcast. We have seen dozens of tweets that say something like my favorite podcast is acquired and founders so we knew there's a natural fit we know the host of founders well David send her high David. Hey, Ben. Hey David. Thank you for joining us. Thank you for having me. I like how they group us together and then they say it's like the best curriculum for founders and executives. It really is we use your show for research a lot. I listen to your episode of the story of a key on marita before we did our Sony episodes this incredible primer. You know, he's actually a good example of why people listen to founders and to acquired because all of his greatest entrepreneurs and investors they had deep historical knowledge about the work that came before them. So like the founder of Sony, who did he influence Steve Jobs talked about him over and over again if you do the research and. I think this is one of the reasons why people love both of our shows and there's such good compliments is on acquired we focus on company histories you tell the histories of the individual people you're the people version of acquired and where the company version of founders listeners the other fun thing to note is David will hit a topic from a bunch of different angles so I just listen to. An episode on Edwin land from a biography that David did David it was the third fourth time you've done Polaroid. I've read five biographies of Edwin land and I think I've made eight episodes of them because in my opinion the greatest such a print or ever do it my favorite entrepreneur personally is Steve Jobs and if you go back and listen to like a 20 year old Steve Jobs he's talking about Edwin lands my hero. So the reason I did that is because I want to find out like I have my heroes who were their heroes and the beauty of this is the people may die but the ideas never do. And so Edwin land had passed away way before the apex of apple but Steve was still able to use those ideas and now he's gone and we can use this idea so I think what requires doing what founder trying to do as well is find the best ideas in history and push them down the generations make sure they're not lost history love that well listeners go check out the founders podcast after this episode you can search for it in any podcast player lots of companies that David covers that we have yet to dive into here on acquired so for more indulgence on company. So for more indulgence on companies and founders go check it out. Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Who? Is it you? Is it you? Is it you? Is it you? Sit me down, say it straight, another story on the way. Who got the truth? Welcome to episode seven of acquired. I'm Ben Gilbert. I'm David Rosenthal. And we're 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 that they were the most valuable company in the world. What? Google announced earnings and people are speculating that it might check the prize. I haven't checked the stock price but that it Google's market cap might pass apples tomorrow. Gotcha. Mr. Market will tell. Yeah. And in 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. Founded YouTube was founded early 2005 by two former engineers and one former designer from PayPal. Part of the much balley 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. Just keep it in the family. So it was founded in early 2005. And then in November of 2005, Sequoia and Roll off 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 so it only took us seven episodes to talk about Andy Sandberg here on a choir. Ironic I know. And it is note David looks like Andy Sandberg. There should be no inside jokes in podcasting. And so lazy Sunday comes out and a whole bunch of people like video their TVs and post it to YouTube. And I don't know if this is an aggregate or just one of the versions of this clip of lazy Sunday generates seven million views on YouTube, which was huge. 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. So I mean to get that kind of view count that early. And that was even you know, I'm sure it was a lot of college kids like me watching it 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, you're writing 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 has grown in July to about a hundred million video views a day, which is pretty incredible. And then and a whole bunch of problems that arose with that, which we'll get into in a minute. But very shortly after October 9th, 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 founding the company, literally in a garage. They'd only raised 11.5 million in venture capital. So the multiple 11.5 million to 1.65 billion. That's what 100. 120 Xing. Pretty incredible. I mean, this kind of stuff, and this was 2006. This stuff didn't happen in 2006. I mean, after the, you know, the internet bubble, the lingering after effects are still reverberating through the valley even a few years later. And the idea that a company would go from founding to actually being sold to a real company, Google, not just, you know, going public with funny money in 18 months for over 1.5 billion dollars. I mean, it was crazy. Even Instagram was that we talked about on one of our first episode was such a splash of 1 billion dollars. So Google acquisition closes by December of 2006 in March of 2007, Viacom files a 1 billion dollar lawsuit against YouTube accusing the company, the directors. But I can't remember if Google was named in the 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 Viacom and Google settled in 2014. It's hard to believe. 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. And it's really incredible document. It is incredibly fun to read. I mean, I was just looking over it, 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. And we're going to talk about this later and 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. And what you would really expect when you think about defensibility, like in nowhere in this memo does it talk about network effects. And YouTube is, you know, 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 I mean, that's not exactly how I would describe YouTube today. Like what, when 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. I'm often, well, this is, I want to say this for later, but I think it's worth talking about now. The, I'm a little bit bearish on YouTube primarily 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. Drive traffic. So YouTube is effectively, you know, a super fancy CDN at this point. They they're a place where the videos get hosted where people don't necessarily rely on going to YouTube for discovery, YouTube, what they should watch. Or it's just on, on interesting hosting that YouTube and Google pay for. Yeah, it's free hosting. And I, you know, if there was a better place, I think people would easily throw it up on that better place. Yeah. And so we'll get into more of this in detail. But back to 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 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. Which 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 is we are going to be sold is we are going to go out of business unless we have someone that is financing all these lawsuits. Like we have no option to buy a car market. Yeah. And ultimately lost. Which I'd say, but. But yeah, super interesting. You've got this property, this product that is clearly, you know, incredible product market fit growing like I don't know anything. I think nothing that the internet had ever seen until that point. I mean, maybe 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 to it's almost entirely stock. It was only 15 million cash in the rest and stock. David, 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. Yeah. And whether they could, whether they're 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 this guy rocketing 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 is 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 of that. It would also be interesting to look at, you know, we've mentioned Sequoia a lot in this show, both 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. And the growth just just continues on the product side. I mean, by May of 2010, so four years later, less than four years later, they're up to YouTube is up to 14 billion video views a month from 100 million four years earlier by 2013. YouTube has a one billion monthly unique viewers, visitors. And the growth has just continued since then. Okay, cool. So I've heard you say a lot about views and viewers. Got to feed my family. Yeah. How do you feel about YouTube as a business? Well, here's what's really interesting in that's happened since then, especially, you know, we've done our episode on Twitch. Netflix, you know, has also been built. Well, Netflix as a digital streaming service has been built during the same time. So it's on stood up something from scratch in that time. Yep. You know, 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 commerce, most of the dollars flowing through Twitch are in this 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, they were doing about four billion in revenue, but were pretty flat. I mean, they are, I guess, not flat as much as they break even business. Yeah, four, four billion in revenue growing fast, but after payments to content creators and hosting costs and ad sales cost and all associated stuff, about a break even business, you know, zero profit. And so in the last year, estimates that are that they are a $5 billion business, but again, still not a profitable one. The interesting thing to think about there is what is their average revenue per user and the information is 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 those social services that are that are that are not that bad supported. It's probably in that seven eight dollar range, maybe a little bit less because it's, you know, the ad units 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 says only gone up since 2013. So you're talking about less than five dollars per per user. Yeah, 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 going to 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 thanks to the delivery 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. So, it 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. 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 incredibly 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's video and Twitch and others sort of sprung up in its wake is fundamentally though does have a different cost structure than other types 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. Well, and the cost structure is different on two fronts. You know, 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, you know, 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, you know, once what you're on Instagram, those people just post their, post their content or snapchat, you know, they're posting for free. Free and on YouTube's paying the YouTube 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. I mean, the whole Twitch live streaming thing is interesting in itself. But the, even the kind of stored archive video that YouTube is, that's their bread bread and butter. I mean, Facebook has a product that is pulling people away in huge numbers because that's everyone's first step. And I think that the staff that I recently saw was 70% of Facebook videos are uploaded natively. That used to be people embedding YouTube videos and it's just been this massive, massive shift. Yeah, pretty incredible. Well, I feel like we should, 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 had just been announced and I did this as a case study in my interview. I thought, man, this was going to 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 now you get to do a podcast now I get to do a podcast about it. I also think right before we move on, I did fully, I guess I want to come around at that last point calling it short-sighted. That's assuming that there are straight sticking with being an ad platform and particularly a brand advertising platform. If there is some grander plan, you know, 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, you know, whether that storm of the crazy margins that you have to pay out to content producers at that point. But, you know, it's short-sighted in that they maintain that same advertising platform strategy. Anyway, 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. But there's I'm not unique in coming up with this and I was inspired by a few articles that I read and 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, you know, 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 multiple 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 going to go with other also for a totally different reason. The 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 of 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. And these videos is 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. Well, we'll get there in a minute. One point I want to make here. So Google was had been playing with the product for a few years called Google Video Search before they acquired YouTube. And interestingly enough, they actually left it running for like a year or two after the acquisition. And it's exact same form where you could actually upload videos to Google video and then left it up for, you know, 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. Yeah. So what were they doing wrong? I mean, why did they need YouTube and why couldn't they do it with Google Video? Where 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 remember I was in college, you know, when this was happening and one day in, you know, 2006, 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. And so it was primarily 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 strats. YouTube strategy was 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 is... So we can't be honest, I'm not particularly honest. Yeah, I know, 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, you know, the memorabileness of YouTube, you know, and the idea that that could like plant in your brain as a concept of, you know, 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, 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 streaming 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 drives or listen to music or podcasts, you know, podcasts originally were downloaded into iTunes, right? The idea that you would stream something on your iPod with USB, so you can listen to it. Yeah, exactly. Right. I'm sure that's what all 12 years later in the medium is just barely taking off because yeah. But, but, but, you know, I mean, I think about like YouTube was really able to popularize this and then and then the other piece of it, I think is in beds, which I want to talk about in a minute, you know, I mean, YouTube could benefit from this amazing service that it offered that it was. 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. And it wasn't good. 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. But it like 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 it used your 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. I 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. And there's actually two things that just came to mind. One is LinkedIn just lost that lawsuit where 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 the model 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 was in the neighborhood of like $100 million. 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, I don't think either of us is saying we endure either that we endorse this or that I think a lot of these tech companies like explicitly are thinking about it as Macabellian way. But, but think about, you know, think about Uber and Airbnb, right? Like Airbnb, one of the they 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 Macabellian 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? 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. And that 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 to lay. 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. 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 them up or they would have. So we've also covered a bunch of these. But, 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. And then we kind of waved 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 then, 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 they, 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. So that's one to continued broadband adoption. I mean, this would not have been possible without broadband. And then three, the, the quote is wide proliferation of inexpensive video capture devices. What was happening in 2005, 2006 was you had like flip cam. And that went so well. It's. Yeah. And you had digital cameras still cameras shipping with video modes. And this was new. And then, and then shortly thereafter, cell phones happen. And 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. Yeah. 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 will 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 they were definitely making the bet that 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. Yeah. Me neither. I think, 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, where they spend their time. Primarily in the form of seeking out information, you know, Google 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 and in YouTube. I would imagine a pretty significant percentage. Yeah, that's pretty interesting. And if, and if Google were sending, I don't know, I'm going to pick a number out of thin air, but 10%, 15% of Google searches. I think that's seemed 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, or they search on Amazon. Yeah, 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 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 going to be the first thing anyway. So Google is my front door when I know what I want in Facebook is my front door and I don't know what I want. It's so big hard to know you and such a fail. I try. What was the plan I was going to 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. That 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. I don't know that that actually would have been threatening to their business. 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. And would product oriented founders have led that company to something that looks like Twitch? And what's going to happen to twitch in the next 10 years? Yeah, 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. Okay, so for me, gosh, I kind of part of me really wants to split this into two pieces. And 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 you want. Yeah, right. 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. As we've established, you know, we're 10 plus years into the company and revenues are great but profits are basically zero. And maybe there are 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. Yeah, right. I'm a VC. 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 $5 billion business like it's, it's, it's freaking hard. But, um, in that 1.65 billion is just the beginning. I mean, think about the operational costs of pouring more money into this business over the years. And people and content investments and all that. Um, 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 been discussing, I mean, maybe folks out there do, but like Ben and I don't go to YouTube.com very often. I might probably do occasionally, but only if I'm looking for a very, very specific thing. Um, and, uh, you know, and it's still kind of ugly the site and they've totally missed out on innovations like Chad and. 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. Um, but just on their like pure innovation side. I mean, 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. Um, it changed the world, right? And then the second one being in beds. Um, and in beds is a double edge sword because as we're talking, you know, as we've talked about like. Um, when you can embed your content on somebody else's. On other people's properties like, why did they go to your property? But, um, as a concept, like, it's pretty amazing. Awesome. As like a site owner, I don't have to like host and do figure out the codec and the delivery mechanism for all my own videos. Right. And you did, I mean, basically it upgraded the internet. YouTube upgraded the internet. Yep. 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 like, you change the world and there'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. Yeah. And it like this is a cutie pie. Cheesiest thing. But it totally, totally democratized video creation and becoming a star. Yeah. And, you know, so, 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 minus on the product side. Overall, I'm going to 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 for YouTube, I think they would do that all day every day. Yeah. I mean, also like just on their personalities, right? Like it's, I'm not going to 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 like this idea was not as favorable in 2002 and obvious as it is today, right? Like 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. It's a good thing. There we are. Cool. Thanks for joining us. See you next time. Who got the truth? Is it you? Is it you? Is it you? Who got the truth now?