Music Technology in 2007 and Our Use of YouTube (8 of 14)

This is post #8 about the Qloud experience.  The previous post was about about running out of money and pivoting.  

The year is 2007 and Toby and I have a great idea to build a comprehensive music service.  There were no web streaming services at the time.  Some of the players were:

  • eMusic – a service for indie artists where you could download mp3’s. 
  • PressPlay – a Sony sponsored music service that has only 2 labels and also required a download
  • Rhapsody – a pretty good  service that required a player download and costs $20 a month

We started building the service and went around to all the music labels and providers we could find to license the actual tracks so we could serve up the songs to our users.  Turns out that’s not easily done in 2007.  To get music you have to strike individual deals with each individual label.  Those deals require time (which we didn’t have) and money for upfront payments (which we didn’t have).  Hmmm.

Luckily we figured out a nice loophole.  Google bought YouTube in 2006.  Right before that acquisition YouTube gave equity to the music labels.  In exchange for this equity, they struck a deal that forbid the labels from suing YouTube for 2-3 years (I’m not sure of the length).  This was a little-known fact, but it was true.  

It is also true that almost every music track in existence is available on YouTube.  This was pre-Vevo.  So, we decided that our backend streaming service will actually be powered by YouTube.  Nobody had every tried this, but it allowed us to (a) serve all our music for free; (b) be legal; (c) embed our music right into a browser without asking uses to download a player. 

We did one other smart thing. Turns out there are many many videos for each song. Some are correct and some aren’t. We didn’t have time to go through millions of tracks, so we build into the service the ability for users to mark which YouTube video is correct for that track.  They could play up to 10 different videos and vote for their favorite.  By default, we play the video with the most votes.  This tuned out to work really well.  Once we launched our users would spend hours voting on videos and helping us curate our library. 

We build the service in 4-5 months.  Now we just needed to launch.  Read about how that went in the next post…


YouTube is Huge and Sketchy

I wrote a few weeks ago a post about just how massive the site is.  I listened to a good interview with Jason Calcanis recently where he shared his experiences working with them as a potential partner.  

The short of it is that YouTube has not been at all interested in accommodating any partners because of their size and scale.  One thing that i found interesting in this talk was just how powerful the future of YouTube is. Some interesting points:

  1. Cash. They have an amazing amount of cash at $50 billion  (Forbes)
  2. Nobody’s in charge. Google is great at this in general.  It is very hard to identify who is setting the direction and strategy for each group and the company as a whole.  Because of this, they can’t be critiqued for lack of execution or for being evil. 
  3. Avoiding Anti-Trust. They can’t buy any large players due to the fear that the government would block it for anti-competition reasons.  
  4. They are copying competitor’s strategies.  These competitors are getting lots of video channels around a niche and selling ads around it.  YouTube is now doing just that and will probably do more. 

The cool part of this is that YouTube could have bought Netflix or something similar.  Thus, they are just going to buy lots and lots of content and put it out for free.  My prediction is that You’ll see NFL and other sports content available there along with full tv shows – and it’ll be SWEET for all of us.  

YouTube and Walmart

I recently read a post about advertising on online video.  It’s a good post but probably too detailed for most people.  One thing in the post that stuck out is how big Walmart is and also how big YouTube is.  It got me thinking.  Pretty interesting stuff about two behemoths of our time.  Here are some details: 

Walmart is ginormous: 

  • 8% of every dollar spent in America is spent at Walmart  
  • They have more than 4,000 locations and sell more than $34 billion / month.
  • If Walmart were a country it would be the 19th largest in the world.

YouTube is also huge:

  • 1 billion monthly uniques hit the site
  • 40% of the online population uses YouTube every month
  • 6 billion hours of watched video a month. That’s enough for every human on earth to watch 150 videos a year. 
  • 63% of all videos watched in the US are on YouTube


The point of the article is that if you’re in the online video business, it’s foolish to try to do anything without thinking about YouTube. Similarly, it’d be foolish for a retailer to not want to sell their product through Walmart. 



Why YouTube’s Losses Are Much Smaller Than Expected

Picture 3There’s been a lot of buzz about a month ago about how YouTube loses money and is a horrible business.  Most of these articles came after Credit Suisse’s published an estimate of YouTube’s losses at $470M a year.  This is a large number and people pounced on it. However, there is a good report i just read (PDF only and downloadable here) that challenges Credit Suisse’s assumptions with some more accurate numbers.  For instance, Amazon Web Services could provide storage for 50% of the costs included in CS’s study.  The survey ends with:

Regardless of what you may hear, YouTube costs are a fraction of any other company running similar operations. Most of Google’s bandwidth is free or near-free; its hardware is cost-optimized; and its data center costs are mostly committed or sunk. The top customers of our sourcing advisory service, whose prices are on average 20% better than the average market level, cannot deliver content as cheaply as Google’s massively scaled operation. Surprisingly enough, the ones that come closest are often thosethat leverage the scale of others through using cloud services.
But even if a fair accounting of its costs showed a loss, YouTube gives Google the ability to achieve needed improvements in lowering cost of other operations. Loud stories about YouTube’s losses can only help deter copyright lawsuits and demands from content owners. Skepticism is warranted — but be ready for surprise news of profitability in the future.

The article does explore the upside of allowing the market to believe the YouTube business is quick unprofitable.  With license-holders eager to renogotiate and reap larger profits, it’s better to all them to perceive that it’s much too expensive to host and deliver these files and thus license payments should be low.

But this is clearly wrong.  In yesterday’s earnings call, Google had this to say about YouTube:

“Monetized views” on YouTube have more than tripled over the last year, said SVP Jonathan Rosenberg. Executives would not say whether YouTube was profitable, although they did say it was on a trajectory to become a “very profitable business for us” in the “not too distant future,” giving a collective heart attack to analysts who have speculated about how much money the site is losing. In a follow-up call with analysts, CFO Patrick Pichette said that the company wanted to reaffirm that YouTube’s business model was credible. “There’s been so much press with all these documentations of massive costs and no business model,” he said.

Interesting to think about next time someone speaks up about how horrible the YouTube business is.

The iPhone and the world of computers

I’m an iPhone users and i love it.  It has transformed my mobile phone usage and dare i say, my life.  With the internet at my fingertips, i no longer go more than 10 seconds without knowing the answer to a question.   I have come to realize that the world of computers and the internet will always be with me, following me around and enriching my life.  It also makes me realize that my relationship with my computer is going to change.  Because i can Google, email, YouTube, Facebook, and check sports scores from my cell – my desire to have my computer near me is dwindling.

The new iPhone 3GS makes me think about the landscape of the computers out there.  If you don’t know it, there’s a new type of machine that’s becoming popular called The Netbook.  It’s a $200-400 machine that is quite small and sometimes comes attached to a wireless contract so it can be connected at all times.  In this regard, it is very similar to a cell phone purchase except in a bigger form factor. (click here to check out HP’s 200 dollar machine)

When i think about the machines out there, i think of this continuum:

Picture 8One thing that is interesting is how Apple is has high priced machines in their Macbook Pro’s and Air devices and “lowend” machines in their iPhone.  Whatever market you’re at, Apple will have the slickest machine.  Microsoft, on the other hand, has less slick highend machines, and netbooks on the lowend.  Personally, i like Apple’s direction more but it’d be even better if they had a tablet or smaller sized laptop that was an iPhone/laptop hybrid for $400. I think the regular PC starts to disappear and all sales are Netbook sales.  Why would anyone pay $1000 when they can get a decently powerful machine for $200?

Picture 9

What will be great is the day day when all i have is my cell phone and i just plug it into monitors and keyboards when i want to work at a desk.  My iPhone cradle gets a lot more functional and my need for a second machine disappears.

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Real-Time Search

I got quite inspired when reading this post by John Borthwick.  First of all, the YouTube data really surprised me in that YouTube is now the 2nd largest search site online, bigger than Yahoo! at over 3 billion searches a month.

Second and more importantly, i started thinking about real-time search.  Finding out what is happening right now on the web is really cool and going to becoming increasingly important and interesting.  As real-time events happen such as earthquakes, sporting events, meetups, etc. we’ll want to search the web and find out what people are thinking.  This is a fascinating new arena that comes with real-time messaging.  We’ve always has AIM and Facebook‘s status messages, but we’ve never had a way to search through them and get a snapshot of what’s happening.  Until now.  Go to Twitter’s search at and type in something and you’ll immediately see what people are thinking and doing on the web.  It’s incredible


I’m still getting my head around what this means and how it’ll play out but i have to imagine that real time information will be quite valuable.

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Recording Life

I just read a great article by Clive Thompson called “Head for Detail” about Gordon Bell‘s latest experieement.  Please just read the first 2 paragraphs.  It’s about Gordon and how he is recording everything he’s doing (video, audio, emails, web, everything).  He’s been doing it for the past 14 years and is able to bring up almost eveyrthing.  Clive writes about Bell, saying:

He[Bell] had a tiny bug-eyed camera around his neck, and a small audio recorder at his elbow. As we chatted about various topics–Australian jazz musicians, his futuristic cell phone, the Seattle area’s gorgeous weather–Bell’s gear quietly logged my every gesture and all my blathering small talk, snapping a picture every 60 seconds. Back at his office, his computer had carefully archived every document related to me: all the email I’d sent him, copies of my articles he’d read, pages he’d surfed on my blog.

This really resonated with me as i am already trying to record my life. I have photos up on Flickr, i have my ideas going to my blog, i have my mundane thoughts going to Twitter, my videos going to YouTube, and my friend interactions recorded on Facebook.  I’m already on the web but just in the totality that Bell is.  Storage is getting cheaper and cheaper it’s gone from $233,000 for a gigabyte in 1980 to less than $1 today.  Soon there will be enough storage in your cell phone for your entire life to be stored.  I do this because i want to remember. I want my memories to be accesible all the time and reading the article made me realize how inefficent i’ve been in capturing them.

I really like articles like this becaues they make you think about where the world is going and wonder how human interactions and functions will change.  It touches on how humans will change when we no longer have to remember stuff.  I already don’t remember phone numbers beceuase of your cell phone. What if you don’t have to remember people’s names and interactions and you free you mind to be more creative.  Just imagine – that’s what i’m doing now….

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