MySpace & YouTube Are Tools, Not Gold

Bambi Francisco wrote several months ago: “Those who dig for gold rather than those who supply the picks and shovels make the most money. That observation holds true if you just take a look at MySpace and YouTube.” Separately, she notes that Steve Case made a similar comment years ago.

Few would disagree that the content generators — the MySpace and YouTube users who create and/or upload content — are digging for “gold” of sorts, be it simply entertainment, or something more significant such as recognition, relationships, sales/advertising for their business, a political agenda, etc.

What we don’t agree on is this: MySpace and YouTube (and even AOL) are the picks and shovels: Tools, or Web infrastructure, that allow content generators to publish and advertise their content.

Bambi’s article goes on to discuss two new “white label” solutions, Dave.tv and vSocial. Though at first glance the destination site www.vSocial.com looks a lot like yet another YouTube knock-off, that company’s business plan is really quite different. Rather than attempting to compete with YouTube themselves, they supply an entire turnkey site to any company that wants to (compete with YouTube). With vSocial you can have your very own YouTube look-alike up and running in something like 4 or 5 days.

There is another company called VideoEgg that has a slightly different model. Rather than providing an entire turn-key site, they supply components and a service that can be dropped in to an existing Web site, thereby adding YouTube style video capabilities. VideoEgg serves that video from “their” service. For that matter, a YouTube knock-off could use vSocial which in turn could use VideoEgg (though they in fact do not).

Before we jump to the conclusion that companies like vSocial and Dave.tv and VideoEgg are the ultimate providers of picks and shovels, we should note this relevant tidbit: most of these companies use the very same back end content delivery networks. The actual content is served by Akamai or LimeLight, and in many cases the servers that do the encoding (i.e. prepare the video) are hosted in Akamai or LimeLight’s data centers. Furthermore the encoding software that most of these companies use is either an open source package called “ffmpeg”, or a pay-for package from a company called On2. Effectively all such video is played on end user personal computers by the very same Flash video player from Adobe. These are usually run on commodity servers from suppliers such as Dell.

So here we’ve enumerated an entire food chain of tools for content creators and digital socialites to use in publishing and distributing content.

The question this crowd is interested in: Who will make the money and how can I get some of it? I have no idea on either front. Clearly the battle for the top video site is over, but does “over” for now mean over for ever? Or will we see another site whoop YouTube like YouTube whooped Google Video or Google Seach whooped established search engines? Will users be fickle?

One could argue that Akamai and LimeLight are well positioned to develop their own services, and compete with the destination sites and the turn-key site providers, but that could be a risky move.

Already we see some gold rush level dynamics among those diggers. Some YouTube videos get very few hits, and some MySpacers are nearly friendless. Others are blockbusters with millions of views. Many of the blockbusters have poor user ratings, yet appear at the top of the “most viewed” list where users (who ignore the ratings) continue to click. But what about the gold? Even the most popular artists do not get a big payday. For example, the Diet Coke and Mentos guys have allegedly pulled in about $75K gross to date. Take out the production costs and time value, and there’s little left.

So some $1.65B questions: Google and News Corp want to know – Will the content creators keep digging in the same place, or move on? How will the MySpace’s and YouTube’s keep the masses from giving up on digging altogether? Investors want to know – If they move, where will they move to? I want to know – how can I get more than a miserable couple thousand views on my own videos! (In case you are interested, they are indexed at http://www.vidlocity.com)