How Dead, or Alive, is YouTube Now?

Last week I discussed the Google/YouTube deal and concluded that while it had some noteworthy flaws, the pluses outweighed the minuses. Then, after posting the blog, I read an interesting article by Peter Hartlaub in the San Francisco Chronicle. Entitled “Is YouTube Dead?”, Hartlaub argued that when button-down corporate types with big bucks take over wild, zany, iconoclastic outfits like Napster, MySpace, or YouTube, you can bet that the party’s over and the wildly creative, audacious spirit that attracted the Daddy Warbucks in the first place will be slowly euthanized. Reminds me of that old song about what happens after the wedding: Big Bad Bill is Just Sweet William now.

Is Hartlaub overly paranoid here? Maybe, because Google’s founders appear to be fairly wild ‘n’ crazy themselves. On the other hand, he’s got a point worth considering. Too often, I’ve seen big Wile E. Coyote corporations who have lost the capacity to innovate buy up small, imaginative Road Runner companies, and then slowly strangle the latters’ spirit with bureaucratic sclerosis. Google is different because it’s still quite innovative, but as a multi-billion dollar publicly traded corporation, it will be interesting to see how it “manages” and “smooths over” the lawless edginess of YouTube. And it will be doubly interesting to see how many YouTube fans wind up defecting to other (yet unborn) more maniacal (less “commercial”?) sites over the next few years. (Already, thousands of clips are being destroyed because of possible copyright infringements; a prudent legal maneuver, to be sure, but does it support Hartlaub’s premise?)

One other thing. Regardless of how similar the Google and YouTube corporate cultures might be, and regardless of the good intentions of both parties, it is damn difficult to integrate any two organizations in a way that 2 + 2=7. The executives, consultants, lawyers and investment bankers who typically cut deals are financial and legal experts who often have little interest in these integration matters. When pressed, their responses often reflect a naïve assumption that somehow the acquiring company’s overworked staff will make it all happen. But even if the two company cultures have similar values, it’s still a formidable challenge to synthesize two complex sets of systems, products, people, and attitudes.

I’m not saying the Google/YouTube deal is therefore a stinker. On the contrary, I stand by my conclusions of last week. But I want to acknowledge Hartlaub for suggesting a valid point: mainly, that things may look great on paper, but they change after an acquisition, and sometimes not in ways that were anticipated, or desired. Let’s revisit YouTube after a couple years and see what it looks like, and let’s see if there are new outlaw competitors who have taken over the buzz and the growth.

Is the Google/YouTube Deal a Star or a Dog?

When Google bought YouTube for $1.65 billion in stock, the press predictably went into a frenzy. But in analyzing any acquisition, it’s important to get past the hype, because well over half of mergers and acquisitions (M & A) wind up destroying shareholder value.

In my new book Break From the Pack, I present a “6T Blueprint” for making acquisitions that will help an organization become more successful, not simply become bigger. Let’s examine the 6 T’s and see how the Google/YouTube deal fares.

1. T1=Tomorrow. Does the acquisition position the new (combined) company for success in tomorrow’s playing field; that is, in emerging, fast growth businesses that will define tomorrow’s marketplace? This is an important question. If an acquisition primarily improves the economies of scale of current processes, or cross-marketing opportunities of current products, or the share of a current market, it’s likely to have lousy long-term value. In other words, if Google had acquired YouTube simply to gain access to its 100 million video clips and its 50% share of the online video market, it would have been a poor decision. In fact, I give Google fairly high marks on T1, because the company sees the "tomorrow" possibilities. The online video market might well be the next evolution in news, entertainment, and possibly the Internet itself—and Google is now positioned to innovate it and dominate it now that it has collared the hottest brand and the strongest online video community.

2. T2=Top Technology. Does the acquisition allow the acquiring company to obtain a specialized or new proprietary technology that offers measurably quantum improvements in response time, customer care, product innovation, and penetration into tomorrow’s market? I give Google low marks on T2. There’s nothing particularly earthshattering or proprietary about YouTube’s technology. If anything, it’s Google’s technology that will give bigger scale, better search capabilities, and newer application to YouTube’s.

3. T3=Top Talent. Does the acquisition bring in an abundance of top talent people who possess genuinely state-of-the-art, cutting edge expertise and experiences. The answer is no. Google didn't need YouTube for unique talent, nor did it get unique talent. T3 is another mark against the deal.

4. T4=Turbo-Time. There are two parts to T4. First, will the acquisition make the new company faster? (All too often, acquisitions make the new company slower and more sluggish). On T4, I give Google a so-so because I don’t think the new company will be any faster or any slower. The second part of T4 is: Will the newly acquired company be absorbed and integrated quickly. Here, I rate Google higher. The two companies are neighbors, their cultures are similar, and they’re integrating intangibles rather than huge factories and distribution systems scattered around the world. The integration should be relatively smooth, though keep in mind that other Web acquisitions, like ETrade/harrisdirect and Ameritrade/TDWaterhouse have proven far more complicated and difficult than originally anticipated.

5. T5=Titillation. Does the acquisition create products and services that delight customers, that make them say “Wow!” Yeah, I’d say definitely. Google can now offer a search capability for a big, ever-expanding bunch of cool videos to complement its presence in data and text. (Too often, acquisitions generate products and services that are “me-too” commodities. Not so here).

6. T6=Tiny. Is the acquisition small? The research indicates that the larger the deal, the more likely it’ll fail. The smaller the deal, the more likely it’ll be easier to execute, and the more likely it won’t slow down the company, or lock it into a “today” position (rather than tomorrow), or devour its resources. It’s also more likely to be done for the right reason: to fill in a small strategic gap or hole rather than be a giant panacea for management that hasn’t a clue on how to grow the company organically. So how does Google fare? Hard to say. Relative to its $100 billion plus market cap, it’s a small deal. Relative to its $6 billion revenue, it’s not a small deal. I tend to be conservative and reference revenue, because revenues reflect the daily reality of the company more than market cap valuations which can be unrealistically inflated (remember how AOL bought Time Warner with its hyper-inflated stock right before its company’s stock crashed?) Nevertheless, since the deal was strictly stock, the collateral damage might be limited. Upshot: I give Google a so-so on T6.

Put it all together and we have a high score on T1 and T5, an okay or so-so score on T4 and T6, and a low score on T2 and T3. This means that the deal probably won’t be a failure, it might even be a genuine success, and it most likely doesn’t justify the fawning, breathtaking analyses that have accompanied it this month.

Patricia Dunn, L.I.P.

No, that’s not a typo. It’s L.I.P as in Live in Peace as opposed to R.I.P. Rest in Peace. And that’s what I wish for HP’s beleaguered ex-chairman and ex-board member. But before I get into that, I want to follow up on last week's blog ("Much Ado About the HP Board") and contemplate the so-called “scandal” that continues to rock the company.

Very simply, here’s what puzzles me. George Keyworth, the (now ex-) director who apparently did the leaking—he’s not the one that the press and the politicos are focusing their wrath on. Tom Perkins, the director who pushed Dunn to find the culprit, then pushed back at Dunn when his buddy Keyworth turned out to be the leaker—well, he’s also not on the hot seat either. (In fact, he wasn’t even fired from the board; he quit). The legal beagles at HP, who were kept appraised by Dunn but never made a big stink about her actions—they’re legally free and clear. And CEO Mark Hurd, who apparently knew a fair amount about what was going on—he remains, albeit embarrassed, the home-town hero. But it’s Dunn and Dunn alone who was summarily drawn and quartered and is now facing multiple criminal indictments by the California attorney general. Am I missing something about justice here?

There may be legitimate reasons to criticize Dunn’s overall performance as Chairman of the Board, but that’s not what’s at stake here. Dunn was not doing a Nixonian secret “enemies list” that undermined the integrity and stability of the entire corporation. The fact remains that she was doing the board’s bidding when she approved an investigation to determine who was leaking private information to the press. The directors were very clear: they wanted action on this problem, and they wanted results. Patricia Dunn earnestly tried to “fix” the problem by hiring investigators who used questionable and unethical means to find the culprit. She admitted her poor decisions (unlike Nixon) right away; and yes, she should have been reprimanded, there ought to have been some mea culpas and apoligies, and she should have stepped down from here Chairman position yet remained on the board. In other words, the press shouldn’t be sensationalizing this story and no heads ought to actually roll for it. But if they do roll, why is it only Dunn’s head that’s on the platter? Am I missing something about justice here?

Meanwhile, while all this is happening, Dunn is fighting her third bout with cancer and says she hopes to live to clear her name. I hope she does both. That’s why I say: Patricia Dunn. L.I.P.

Much Ado About the HP Board

The business press loves a sexy story that it can milk indefinitely, and I guess the HP board of directors provided just the right fodder. Without rehashing the gory details, the bottom line is that a few board denizens, including now-ousted Chairman Patricia Dunn and current CEO Mark Hurd—approved some questionable, stupid, and probably illegal tactics in order to figure out which board member was leaking private board information to the press.

Okay, so it was a bit sleazy to hire private investigators to pretend to be board members calling the phone company in order to get copies of the (real) board members’ phone histories. But a “scandal”? Come on. This isn’t Enron with its off-balance sheet partnerships and fraudulent pronouncements to the investment community. It’s not the tobacco chiefs insisting under oath that their products were safe even as their own in-house data showed otherwise. This was a clumsy, Inspector Clouseau-type attempt to achieve a (legitimate) goal of plugging up leaks of (legitimately) private board conversations. Patricia Dunn is a very earnest person who was charged with finding out where the leaks were coming from, and she took her charge to an unfortunate extreme.

I suppose it makes sense that Dunn was dumped as Chairman, though the fact that she was so quickly tossed off the board altogether makes me wonder if she’s being unfairly targeted as the one and only scapegoat. (Remember, she refuses to take full and sole responsibility for this sordid little case).

But at the end of the day, who cares? It’s not like consumers, investors, and the capital markets were damaged. Some bigwigs on the board were embarrassed, and the company got some well-deserved egg on its face. But when a New York Times headline asks “As Scandal Unfolds, Will Customers Care?”, the answer is obviously, and rightly, no. The company’s product lines remain solid, customers see no reason to defect, and Mark Hurd—who admittedly doesn’t come out spotless in this somewhat seedy little tale—still deserves a lot of credit for cleaning up Carly Fiorina’s mess and raising HP’s stock price 72%--a level that’s held steady since the story broke.

Here’s my prediction: after some more posturing by bloviating politicians, the story will fade into oblivion, the small civil suits will be quietly settled, the HP board will become squeaky clean, and the press will move on to the next big non-thing.