Why YouTube Is Ready for Prime Time

Then, judging from the $580 million that media conglomerate News Corp.(NWS Quote) paid for MySpace.com, it could be worth $500 million to $1 billion in an IPO, which is not bad for a year-old company with few barriers to entry and competitors galore. In the worst-case scenario, it would be sued into oblivion, like the early version of Napster.

For the long answer, I turned to Paul Kedrosky, a Web media expert, venture capitalist and contributor to RealMoney in San Diego. He argued that we first need to understand what makes YouTube unique and worth investment underwriters' attention more than a dozen rivals with names like Revver and Clipstation.

As with most things, there's a lot to be said for great timing. YouTube was the first Web site to make the sharing of homemade videos easy and fast -- and it came along at the exact moment when residential broadband and cheap digital video cameras hit the mainstream and intersected with the rise of a phenomenon known as online social networking. YouTube's genius is fourfold: It marries smart engineering with simplicity, immediacy and community.

• Until a year ago, if you shot a one-minute video on vacation with your digital camera and wished to share it with friends and family, it was a pain. You needed to save it to a DVD and send it through the mail.
• YouTube's founders, who were previously early stage developers at the pioneering online financial services firm PayPal, figured out how to let you easily upload your video in its native MPEG format and then quickly convert it into a widely accepted, highly compressed, fast-loading format known as Flash Movie. (It takes minutes to load and share your video, vs. the two- to three-day process involved with doing the same at Google's(GOOG Quote) video site.)
• YouTube engineers then figured out how to let you embed the Flash movies into blogs so that they could be easily shared with a single click.
• They made the clever marketing decision to allow people to watch the movies without going through a cumbersome registration process.
• And they decided to let the growing community be self-policing, allowing self-appointed nags to flag, segregate and dispose of pornography and other objectionable content.

Pretty soon, as the YouTube community grew virally through word of mouth, artists and exhibitionists figured out that they had a fast-growing audience for personal and semi-professional video journals and stories.