Maybe Google Wanted to be Sued: YouTube and Plan B

No matter how you spun it, a lawsuit was waiting to pounce on YouTube. And when the lawsuit came, it would be from multi-billion dollar media conglomerates. Worst of all, people feared it would trigger a landslide of more lawsuits. Even still, Google bought YouTube. And now the billion dollar war has begun.

I wondered: Maybe Google actually wanted to be sued.

Backroom Discussions

First of all, in a perfect world, no, Google wouldn’t want this. And Google, hoping that the world is close enough to perfect, did buy YouTube. But somewhere during discussions, someone must have asked, “How is this different from Morpheus and Kazaa? Won’t we be sued into oblivion?”

The smart lawyers at Google probably mentioned something about the DMCA, but honestly, would you want to buy a company that would be hated, constantly, by the very people who own the content that keeps you afloat? Or better, how will such a site remain #1 if there is a (Edit: added link) unified effort by content owners to either displace or destroy you? Most of all, media companies, who have significant clout and money, wouldn’t let YouTube host their content for free without a fight. There was more to this purchase than meets the eye.

No matter how you look at it, the purchase came with a lot of legal risk. I believe nobody at Google is surprised that Viacom is suing and wants $1 billion, A.K.A. most of the sum Google paid for YouTube. This is all part of the expected road map in owning YouTube.

So plan A was to hope people would be nice and look the other way. That worked for a year so far, and Google hoped it would continue. Plan B was to get sued.

This isn’t any ordinary “get sued and win” plan. Waiting to get sued so you can win in court is a defensive move for most companies. But for Google, this is preemptive. This is about Google defending YouTube, instead of YouTube defending YouTube.

Why Getting Sued is a Preemptive Strategy

Let’s pretend that YouTube was not bought out because talks got delayed. Then realize that it would have probably been sued a lot sooner by a lot more people. Investors would flee and nobody would want the company now. If YouTube goes broke, that would have likely pushed Myspace Video to #1, giving News Corp a huge edge since it happens to own Fox Entertainment. Myspace Video would become whatever was in the best interest of Big Media. Probably a DRM infested piece of crap that sued its users for uploading copyrighted material.

Myspace is #2(Edit:) If you don’t think Myspace would have hopped into the throne, you may want to see this recent report that shows how Myspace video is #2 in the video market. And as the trend goes, Myspace is actually losing share in the video market (3% between December 2006 and January 2007). Seeing as how 16% of all YouTube traffic comes from Myspace, you can’t say YouTube isn’t causing serious harm to Myspace videos, keeping it from becoming #1.

On the other hand, if YouTube didn’t go broke and fought the lawsuits, imagine if they had lost. Myspace Video gets to keep whatever edge it has, but virtually every other video site on the Internet becomes illegal overnight. Thousands of user records and IP addresses would get subpoenaed, and video sharing dies in one fell swoop.

Why Does Video Sharing Matter to Google?

What’s the next big thing on the net? Video. Google cares what happens in video sharing because it wants a slice of the video ad market. It doesn’t want to just be in the market, it wants to own it like it owns text ads. But that’s not the whole answer.

Google bought YouTube because it wanted to make sure of three things:

  1. Google has first dibs for video ads on the biggest video site on the Internet
  2. YouTube remains legal
  3. Expand and protect current fair use related provisions involving copying intellectual property

The first point is obvious, and the second point feeds into point #1.

But the third point is the most important for Google. If YouTube were to lose a lawsuit for hosting intellectual property, it would severely weaken Google’s position in a variety of current and future endeavors. Any aspirations Google has of someday crawling and indexing video content (nope, they don’t have this technology yet) would now be in legal limbo. It would also potentially re-introduce new arguments against their Google Image Search. And their book search program might suffer a similar fate once the YouTube precedent settles in. Google, being a company that spiders and indexes (stores) massive amounts of copyrighted information, would now be in serious legal jeopardy.

YouTube is Google’s Future

Thus, Google not only threw money at YouTube: it threw its lawyers at YouTube too. Google’s lawyers are some of the most well-versed copyright lawyers in the world since so many of their lawsuits deal with that issue.

The goal here is simple. Google wants to own the #1 video sharing site (completely legal), own 100% of the ads on that site, and clarify many currently-ambiguous copyright issues in their favor. If all of that goes as planned, the $1.5 billion paid to YouTube was a small price to pay. But if they had never gotten involved, the potential losses were far greater than a billion or two. Since Google has a market capitalization of over $130 billion, even a dip of 1% means losses of over $1 billion. But if entire sections of their business model became legally uncertain, you can bet they’d lose a lot more than 1%, especially with their insanely high P/E ratio (the ratio between what their stock is worth and how much they make).

By fighting a lawsuit, Google gets to prove the legitimacy of Internet video distribution – something that will probably never flourish under the “old media” regime. Unfortunately for them, the DMCA protects site owners from liability of what its users do — or at least that’s the general interpretation. Letting YouTube fight this battle alone with their own lawyers might have resulted in a very public and unnecessary loss that would have crippled Google’s video ambitions and possibly caused collateral damage to a bunch of related industries (especially search). This would have forced everybody to play by the conglomerates’ rules, and taken anyway any guarantee of Google getting any cut of the video ad pie. Video sharing needs this clarification before it can move forward. And if Google legitimizes it, they will have the biggest video site on the web for their video ads to play.

So let’s ask ourselves again: would Google pay $1.5 billion so it can fight the lawsuit on behalf of YouTube? Now that I think about it, it seems like a wise long term move.

Update

9:01AM 3/22/2007: I’m on Slashdot. I think I survived the Slashdot Effect!

The Future of iPods

In another blog prior to this one, I wrote about a prediction I have for iPods. Because I plan on fully retiring that blog in the near future, I thought I would port the post here to keep the prediction alive. Note: I wrote this post long before the recent flurry of iPhone headlines.

Here’s my prediction: The next iPod will be the new hook Apple will use to enter the cell phone market.

A little history:

  1. First Apple introduced an iPod. It played music well.
  2. Then Apple introduced color iPods with photo capabilities. A mostly useless upgrade, but still cool.
  3. Then Apple introduced a video iPod. Suddenly portable video became a hit.
  4. Then Motorola introduced the completely shitty Rokr iTunes phone. Nobody cared.

The reason why no cell phones have been successful with music playing integration is that the two tasks require use input methods that are starkly different. Making calls requires a number pad and the ability to browse through a phone book. Sending text messages requires typing abilities. Browsing music, on the other hand, requires volume control, music selection, and play control. Let’s not forget the entire device must be able to sync the music files too. Dumber people in the past have speculated Apple would release a phone iPod that had an old fashioned digital number dial type of thing that would superimpose over the click wheel. Wrong. Dead freaking wrong!

Let’s fill in the gap. Recently there have been very prominent rumors about a new version of the video iPod that has a giant touch screen with a digital click wheel that only appears as necessary. Sounds cool, right? Now you’ll be able to enjoy videos more than ever! But wait, there’s more.

Apple’s newly rumored screen-only interface is the key. No, not because they can superimpose numbers over it when you’re in “phone mode.” Like I said above, wrong! Rather, because when you go into “phone mode,” the click wheel disappears and is replaced by a cell phone style keyboard. That’s right. The new all-digital front panel allows Apple to overcome the problem of mixing two different devices with completely different input methods. The new iPod will simply drop the click wheel if you aren’t doing a music or video related action. It’s genius.

Imagine an iPod that has a small, albeit low-quality, speaker that allows you to use the iPod as a phone as well as hear your movies. Imagine newly upgraded iPod earbuds that allow you to make and receive phone calls without ever taking your iPod out of your pocket, all while simultaneously pausing your music. Imagine a phone where your ring tone could be any song you own.

Apple won’t be pushing this new idea forward any time soon. The world is not yet ready for an all-in-one device. But the day will come. The current big personal electronic devices are:

  • Camera
  • Music player (iPod)
  • Movie player (iPod)
  • Cell phone
  • PDA
  • Internet device

It’s clear that some devices are best left independent. Apple won’t want to make their pristine products murky by adding mediocre peripherals such as a crappy 3.0 megapixel camera; not to mention such a hardware extension will probably compromise the sleekness of an iPod. That said, cameras are likely off the list forever merging with the iPod unless they can integrate it without messing up the smooth curves on the device.

Apple could go another route by integrating Internet access, but I predict that Internet access has too many geek-only issues such as security that may confuse or annoy consumers — Apple will probably never merge Internet access with the iPod. However, they may integrate wireless networking functionality to allow syncing with iTunes on a computer located nearby. And maybe, just maybe, on some random whim, Apple could integrate Internet access simply to allow direct purchases from the iTunes store. However, a consumer who can’t trial samples of music is less likely to buy anyway, so, again, I predict Apple probably won’t introduce this feature in order to protect its “just works” iTunes music-purchasing experience.

Before the cell phone is introduced into the iPod, I predict Apple will test this different-interface idea by introducing a new sub-feature into the iPod that will make use of it. Potential applications are:

  • Ability to sync with your iCal program (PDA integration). This would introduce a new task managing/calendar interface.
  • A different interface to browse photos.
  • The ability to edit music tag information (such as artist or song name).

Apple will be careful about this. They will avoid the (noob) trap of creating 18 different interfaces for 18 different types of situations. Likely, there are only a few types of visual interface layouts they will introduce:

  • Buttons (like on a web page)
  • A number pad like on a phone
  • Yes / No / Cancel dialog

I predict this will be introduced in early 2007 and polished by year-end. Tell me I don’t sound right.