Let me begin by apologizing for the lack of blogging during the last 2 months. After getting back to school away from the cubicle lifestyle, I found it difficult to keep up with the tech news and keep this site updated. Nonetheless, I plan on trying to update it more frequently because I’ve felt as though I’ve lost some touch with the tech news.
In the last two months, the tech industry has been active as usual. The biggest news, however, involves two of the powerhouse internet companies teaming together. Google recently acquired YouTube for $1.65 billion dollars. Though this may seem like a simple powerhouse buyout, the implications of something like this have significantly changed the landscapes of entrepreneurs and internet companies around the industry.
Why become an entrepreneur?
The goal of starting a company has changed since the 90’s. Entrepreneurs used to have the goal of starting a company, getting funded by a well known VC firm, and then going IPO and riding off into the sunset. These entrepreneurs would ultimately hit it big with one firm, then move onto another project or even start their own fund to promote other small ideas. The PayPal “mafia” as they are called are notorious for starting great companies like Yelp, YouTube and even LinkedIn.
But the question that we have to ask ourselves is the following: Has the goal of starting a company and treading your own path changed in the last five years? Companies these days seem to start up and have zero idea on how to make money through their sites (YouTube included). Their model is meant to gain significant amounts of traffic so that a larger company can ultimately buy them out.
At this point, we have to ask ourselves, do we consider that still entrepreneurial? Starting your own company and developing an idea is exceptional, but the main selling point for all of these companies is simply traffic. Grouper was bought by Sony for $66 million dollars, MySpace was bought by News Corp and a plethora of other companies are looking to make that quick buck. The bottom line is that the mold and motives of an entrepreneur has changed significantly since the 90’s.
Why is traffic so important?
Let’s take Google for example. What is their main motivation to buy a company like YouTube? Is it the potential impending law suits that may come of the large amount of copy written material on the site? Or is it the expensive bandwidth costs that they have to pay on a monthly basis (rumored around $1million). In Google’s eyes, they gain significant traffic to divert back to their home site “Google.com.” From Google.com, with the increased amount of traffic, they can start charging more for their advertisements so that their sponsored links can be sold for higher prices.
This model makes a lot of sense for Google. Higher traffic is the only way they can make more money since they are already so large. Their external services that they have tried to do have not been very successful. Nonetheless – this model will probably be adopted by companies like Yahoo, where an acquisition in facebook can significantly increase their traffic and ad pricing.
So now what?
This partnership will prove to be the building blocks for other companies and how they operate. It should be interesting to see when the phase of web 2.0 companies getting bought will slow down. The way things are going, however, it doesn’t seem like it will slow down anytime soon.
Just my $.02 (feels good to say that again)