Destiny of Facebook and YouTube

Viacom buys Atom, adding this to their other recent purchases, XFIRE, Y2M, GameTrailers.com, IFILM and Neopets, placing them all under MTV Networks. Atom has very interesting short films and gaming properties, but none of the sizzle and growth rate of YouTube, for example.

The one thing still missing from their portfolio is a MySpace-like social networking site, which indicates that a Piczo or a Xanga may be next. Facebook and YouTube are too expensive, and if they continue to get more expensive without a relevant revenue model emerging soon, they’re going to become too big for their own good, since IPO without revenues and profitability is no longer an option in the current market.

On the other hand, if Google follows up to its MySpace deal with similar deals with Facebook and YouTube, that may provide instant legitimacy to the business models of those two players, which I suspect is what they are hoping for.

That deal discussion would, however, drive Google to a strong negotiating position for an acquisition. Yahoo as well, if they choose to bid for the same style of deal. The only other player in the market who can play this game is Microsoft.

My guess, therefore, is that Google, Microsoft, and Yahoo will wrestle and resolve the Facebook / YouTube exit question. Viacom, News Corp and Fox will go for the smaller deals like Piczo, Xanga, Bebo, etc. Om calls this a leftover strategy, but with companies that have reach and marketing muscle, a leftover strategy may just be the right one, rather than paying outrageous prices for questionable revenue / earnings leverage.

Murdoch was smart. He acquired MySpace before the prices got out of control, setting in motion this social media bubble. There is limited wind left in the sails of this mania, with another 6 deals deciding the direction of the major players in question. The category is tremendously over-funded, and after the 6 or so key deals get done, which they will in the next 6 months, the category will crash.