Novice Investing - Doing The Math on You Tube

Date: Tuesday 07th 2008f October 2008 01:50:02 AM

Doing The Math on You Tube - 09/20/2006

By: Novice Investing Staff

A lot of people is talking excitedly about You Tube these days. The pioneer in online video sharing site is the business everyone loves to be in. Why not? Video is the next step in the internet evolution. As bandwidth cost goes down, you can view movies online in the not so distant future. With that in mind, a lot of You Tube wannabe had been springing out of life recently.

Despite all the hoopla, we believe that the euphoria is way over blown. True, while video content represents the next step of online world, bandwidth cost is as much as ten times more than traditional site like Yahoo! Finance or CNN news. They do feature video and audio content every now and then, but most of their content is still graphical and text in nature. So, you ask, if both You Tube and Yahoo! Finance has 1 million visitors each, which would make more money? Pretty easy to answer isn't it? Yahoo! Finance will make a lot more money than You Tube. While the bandwidth cost has come down considerably, video content will be 10 times more expensive to display than text and graphical content.

Of course the whole argument does not revolve around cost structure alone. Unique content is king and You Tube is the king of video content right now. But as time progresses and competitors salivating over the prospect of getting You Tube traffics, offering only video content will be a great disadvantage due to its cost. Other companies like Microsoft MSN, for example, can subsidize its bandwidth hog video content from its other online portal operations which consumes less bandwidth.

The goal of any business is to earn money. If competitors can earn money with less cost, they will be able to dictate the terms. Just recently, Yahoo! Inc. (YHOO) announced that online advertising is weakening for the quarter and their stock price is punished. Yahoo! is not the new kid on the block and it has diverse revenue streams across its broad web properties.

Thus, while You Tube has huge potential, offering a mere video service will be a death knell for the company. The best way is for them to partner up with companies who has yet to set up its own video content service. How about IAC Interactive (IACI) which owns various web properties?

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Yahoo! Inc. (YHOO) or any other securities.

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