Google’s $1.65 billion acquisition of online video sharing startup YouTube in October 2006 is still one of the most talked about VC exits in the Web 2.0 era — Sequoia Capital had invested $11.5 million across two rounds of funding and owned about 30 per cent of the company. Its return on exit was 43 times on capital invested just about two years ago.
Those valuations have predictably raised the expectations of countless YouTube competitors (and their investors, if any). University of Chicago MBA student Deepak Thomas and Menlo Park-based BlueRun Ventures principal Vineet Buch have done an interesting and useful case study on YouTube in the context of the acquisition. It has some pointers for me-toos hoping to rake in the greenbacks in similar fashion. Here’s an excerpt:
“Food for thought
One of the unique takeaways from the YouTube case is that of using widget marketing to achieve viral user growth. Recently at the CommunityNext conference, Max Levchin remarked that viral marketing on the Internet has been driven in three waves: E-mail, Instant Messaging and Social Networking. YouTube was early to discover and exploit social networking sites as a viral medium. The next venture that discovers a new medium for viral marketing will likely create the next big thing on the Internet.
A few other topics to ponder for start-ups competing in the online video market:
Time for a change
As cameras become more and more powerful, video resolution on YouTube will need to keep pace. Google doesn’t seem to be addressing this issue so far. Eventually Google may move to encoding at higher and multiple bitrates. However, the next tipping point in online video might be the confluence of high-resolution, widescreen video cameras, with cheaper bandwidth capable of handling the higher-resolution content. This combined with the ability to render online video on TVs and the fact that wireless networking technologies such as WiMax will improve bandwidth to the last mile, the possibilities are endless. WiMax set-top box that connects to open-standard video streams over the Internet anyone?
Top videos vs. personal videos
Most visitors go to YouTube to watch a specific video that they have been referred to, and they typically end up watching related content. Videos of family reunions or a day at the beach are not the most popular ones as entertainment content, but such videos remain important to consumers. Youtube’s current video size and encoding limitations might offer an opportunity for a start-up.”
Read the entire study ‘YouTube Case Study: Widget marketing comes of age‘ at Startup Review.
Can you provide a list of me-too YouTube startups in India and US?
Sequoia Capital has been around here for a while but doesn’t seem to be investing in seed companies as they do in the US. Even if a lot of companies are me-toos, the Indian market has plenty of good, young companies. The VCs are perhaps not looking in the right places.