Recently, YouTube introduced a new $20M fund to stimulate creators inside educational categories. And as the discussion about the founders of Facebook-acquired startups leaving the company doesn’t go away, I decided to look once again at two most discussed successful tech acquisitions in the 21st century.
These days our kids are raised by YouTube and our teens by Instagram. However, we can assume little number of people would know about two services in 2018 unless they were tightly integrated and promoted by parent companies. According to Bloomberg Intelligence, Instagram was worth as much as $100Bn in early July 2018, while YouTube could be worth as much as $150Bn. For comparison, McDonald’s was only $124B at that time.
Measuring the value
These companies may have justified valuation based on revenue, but what about the net positive value that is delivered to humankind?
1.9bn and 1bn people watch YouTube and Instagram respectively every month. Both companies are home for piano-playing cats and ultra-silly lip-sync. Both have problems with radicals and extremists. Both companies are being run as separate products and brands. To see what value they create, I had to start from the origins of companies as we know them today.
Choosing the parent company
In 2012, Google, Facebook and, still very promising, Twitter started to compete with each other for Instagram. Just like Google, Facebook had virtually unlimited design and development resources. What actually attracted founders of the startup was the sheer size and potential of network their product could get integrated with.
With time, users came to some rough common understanding of what’s worth to be posted on Instagram and what isn’t. The bar for the quality of published photos was set high, so numbers of daily active users started to get worse. Copying the Stories was a logical way to “democratize” the feed, and opportunity Instagram didn’t miss. The rest is history.
What the company was up for after shamelessly copying Snapchat? Shamelessly copying YouTube.
Lacking ideas for improvements of the short-form content (because Snapchat is dying), Instagram decided to venture out into space so far monopolized by YouTube. Although, there was a little problem:
“Instagram cemented itself as the place in the social media landscape to come for short, entertaining video updates. Not as a place for longer, produced stuff. For that, everybody knows you can just go to YouTube.” — Madison Malone Kircher wrote for Intelligencer.
The audience didn’t see the reason to watch IGTV. And the company didn’t really try to convince it. Not all power users were even aware of IGTV, which led to biggest content producers having just a fraction of views compared to other formats. Where is IGTV now? Low numbers of viewers, low amount of content and no founders. Was there an internal conflict between them and Zuckerberg who pushed to copy the format once again? I don’t know.
Stories were an extension of Instagram product, but IGTV offer was too remote to succeed. Simply copying the product doesn’t work anymore — you have to provide additional value. The power of the user base is not endless.
Hefty price tag
In 2006 $1.65Bn was considered a mind-blowing sum for the Tech industry. Google was ready to pay the price though. In just two years YouTube introduced 480p videos, followed by 1080p in 2009. A lot of experts forecasted massive lawsuits coming against the company, but already in 2008, the world saw VEVO — one of the most prominent music partnerships that allowed users to watch favorite music videos for free without copyright infringement. At the year when Instagram was just acquired by Facebook, Gangnam Style already broke 1Bn views, becoming the first online video in history to reach this point.
With YouTube Red, YouTube Gaming and YouTube Live experiencing steady growth, it makes total sense to expand further and capitalize on another huge sector through YouTube Learning. This summer visitors were already generating 1Bn of views of learning content per day.
Growing category and supporting creators
Yes, YouTube is investing in educational makers to build a network of safe, premium influencers. These influencers wouldn’t post videos with after-suicide bodies or Nazi propaganda, attracting more large-scale advertisers and therefore generating more money for the company. But this step also greatly contributes to building meritocracy in the world, making an educational archive, multiple times bigger than the Library of Congress, available for free for everyone. This is awesome.
Unlike Instagram, YouTube cares about its creators (the majority of them). In July, the company introduced Copyright Match Tool that searches through YouTube uploads in order to find whether somebody has stolen and republished creators original content.
Where are they heading?
On both platforms, you’ll learn how to make your nails look magnificent, but what’s the chance that you will find a high-value educational video on Instagram? Even guys, selling you their dropshipping courses, promising passive income on the Maldives, are choosing YouTube as their core platform.
Although Instagram was acquired six years later, the convergence of developing digital economies grows continuously and playing catch-up becomes easier every year. The problem is that in three years, expanding YouTube will be competing with Coursera and Twitch will have a billion users, while Instagram and half of Facebook will continue being reactive to changes on the market, stamping copy after copy. Assuming Zuckerberg was infinitely bad CEO for Systrom and Krieger, was he the only reason they left? Not really.
Of course, I realize these are two different stories telling about two different acquisitions, but… Can I imagine the Internet without YouTube? No. And can I imagine teens posting selfies in another app than Instagram? Yes.
Note: valuations from the text are from July 25, 2018, before Facebook stock crushed by 20% on July 26 and before the whole stock market became “bearish” in October. As of the date of writing this text, Facebook valuation is down 33% from July 25, while Google valuation is down 18% from the same date. Wide scope of valuations is caused by revenue multiplier uncertainty.