Thinking Tech

The elephant in the room of the Viacom-YouTube case

Posting in Education

When it comes to 21st century communications infrastructure, even the phone company is now uncompetitive with the 1997 start-up.

Cost.

While the documents released in the Viacom copyright case were salacious, and allowed for endless snark in the press, the elephant in the room is not being addressed at all. Instead, it has just grown bigger.

(Picture from the blog of Education Career Services.)

The elephant is Google's cost structure.

Google has worked throughout its history to keep its costs down. That's why it bought dark fiber. That's why it went to cheap PCs instead of dedicated servers. That's why it cares about energy.

Google's relentless focus on its own costs has paid off big-time. Google can now deliver any type of Internet transaction -- a query response, a file transfer, storage of files -- for tons less than anyone else. Maybe it's 10 times less, or more. Google won't say.

So while Viacom's proposed purchase of YouTube made no sense, Google's purchase of the same asset made perfect sense.

Viacom must insert video ads within content to have any hope of recouping the costs of serving it. Google can experiment with text, or just wait for an acceptable ad model to develop, on as much content as the world can create.

Google's advantage was won fair and square. It is less a threat to Viacom than it is to AT&T and Verizon, which should have been its natural competitors but chose to pocket billions in broadband subsidies rather than improve their own plant.

As a result, it wouldn't make sense today for, say, Microsoft or IBM to buy Verizon or AT&T -- even though both could afford to.  (Microsoft is worth $100 billion more than AT&T, IBM almost twice what Verizon is worth. Microsoft is also, still, worth $80 billion more than Google.)

When it comes to 21st century communications infrastructure, even the phone company is now uncompetitive with the 1997 start-up.

It is nothing less than the biggest business story of the last decade. Google, which was four years from its public offering when the dot-bomb went off in 2000, is now bigger and more efficient than either phone "monopoly."

So when Viacom was pushing for YouTube, it was primarily with the intent of destroying it. Which was stupid, because someone else would have come along, or Google Video would have become YouTube.

Hulu faces the same problems a Viacom-owned YouTube would have. The assumption is it will have to charge users cash money to stay viable. Which will drive them all to YouTube.

It does not matter which side is right on the law. It doesn't matter whose documents contain the most cringeworthy comments. It doesn't matter who made what on the sale of YouTube.

What matters is that Google has delivered innovation no one else can match and, until someone does, no one else can compete with it in the mass market for Internet services.

Dana Blankenhorn

Contributing Editor

Contributing Editor Dana Blankenhorn has written for the Chicago Tribune, Advertising Age's "NetMarketing" supplement and founded the Interactive Age Daily for CMP Media. He holds degrees from Rice and Northwestern universities. He is based in Atlanta. Follow him on Twitter. Disclosure