Is it YouTube or Flash? What's next?

For the last few weeks, everyone has been talking about YouTube and its acquisition by Google for a cool $1.65B. The most common question from industry outsiders is "how could YouTube be worth it". That's easy and I'll address that first. The more interesting question in my view is whether the thing that made users go to YouTube in the first place was the content and Web 2.0 presentation or Adobe's Flash software that made it so easy on users AND what the answer to that question might mean for the industry.

So, first the valuation. Just do the math- with the metadata YouTube collects the value of Google Ads on 1,ooo YouTube pages is about $2.50. If they show 100M videos a day as reported, Google can move in right away for $250K/day; over a year that's close to $100M with no additional traffic direction or ad optimization. Since Google can absorb the entire operation with no additional impact on their budgets, all revenue is accretive. At a conservative 15:1 earnings multiple, you get to $1.5B pretty easily; take it to internet type 50:1 multiples and you get a picture of the upside for Google.

Now the real question: why is YouTube a killer service? Is it the Web 2.0 video implementaion (and enabling the theft of rights holder content) or implementing Adobe software so effectively that users get the holy grail- seamless video!

If you know me, you know I like to take the contrarian viewpoint! While Web 2.0 is cool and the social elements are lots of fun, my view is that Web 2.0 and the over hyped rights issues are a sideshow. It's this simple: people love the presentation; YouTube delivered on a long sought after premise- video displayed in the browser with no additional application launch! YouTube's value to users is in the implementation of Flash! The amazing thing is that they own nothing! Not the content, not the technology! They are a pure portal play....

So, what's next! I say watch the real winner here- Adobe. With the brilliant acquisition of Macromedia and its stellar Flash browser plugin, they are positioned with the best implemenation of the "give it all away free and get 'em addicted" strategy since your local dope dealer, or Intel in the late 1980's. Oh, and isn't it funny how Intel's long time SVP of Advertising and Marketing, Anne Lewnes, slipped quietly in the side door at Adobe (now "CMO")...what better way to capitalize on a strategy developed at Intel than to hire the person who implemented most of the killer marketing strategies based on the dope dealer analogy!

And here's the long shot- Google will make a play for Adobe or run the risk of losing their position as the #1 alternative to MS on the consumer desktop. And this time it will be a $50B+ play that will stun us all...more to come.