Don’t pick unpopular business partners

Mark Cuban was right (again). GooTube is headed for some big trouble. When Google initially purchased YouTube, Mark said that they were crazy to buy that many lawsuits (I Still Think Google Is Crazy). Google shrugged, the market cheered and that was the end of it.

Almost a month ago, Mark wrote a post on his blog (You Go Viacom!) that predicted big legal battles for Google, based on YouTube’s illegal network owned content. He hinted that the implications might exceed a simple court settlement.

Today’s news (Viacom snubs Google for Yahoo) vindicates Mark 100%. Viacom is letting Yahoo serve search related ads on their properties on the go forward. This is a MAJOR victory for Yahoo deep inside Google’s forte.

Lesson: You cannot buy or partner with companies that have enemies (like Viacom) if those enemies are important to your business model. No matter how much the media likes your potential partner, and how many teenagers are addicted to it, you won’t make enough money to compensate for a crack in your business model.

As a Yahoo vet, I can tell you now that eyeballs don’t mean money. Geocities was a total waste — our ad sales team couldn’t give away banner impressions on Geosites. We ate the inventory. Fast forward several years and I’m sure that Google ad sales is finding similar resistance to selling impressions on YouTube pages (featuring stupid human and pet tricks). Meanwhile, Viacom is giving the keys to the kingdom to Yahoo, and their sites are quite valuable to major advertisers from P&G to GE.

I know that Google needs to spend their paper dollars quickly before a correction sets in, but the time period since they bought YouTube the GOOG valuation has only grown by 5% — while an ailing competitor like Yahoo has leaped forward 24%. Check the two stocks against each other here.

For about three billion and change (only twice as much as non-revenue generating YouTube cost), Google could probably buy the New York Times. Now that would be real news!

Rule of thumb: When partnering, ask yourself, what is the relationship downside to this deal? Who might pause now in doing business? Who wants my potential partner to fail? Are they important to our business?