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Video Killed the AOL Star

This should be a big week for Time Warner's (NYSE: TWX  ) online hub is relaunching its video portal to all Internet users -- not just the diminishing ranks of its flagship service -- and hope springs eternal that the company will be able to ride the YouTube coattails.

Funny thing about riding coattails, though. You never do get a good look at the person donning the coat. You only see the back of the scruffy head, and from that vantage point, YouTube may look like Joey, a Milli Vanilli video, or a waterskiing squirrel. In other words, riding coattails is never as easy as it looks.

AOL's makeover doesn't make it a YouTube clone at all. The company is launching dozens of channels, and even though it is accepting user submissions -- the very heart of the YouTube circulatory system -- it is also looking to sell digital downloads and subsidize other studio creations with ads.

That's not at all, of course. If anything, AOL is trying to take on the fledgling video portals of Google (Nasdaq: GOOG  ) and Yahoo! (Nasdaq: YHOO  ) , and to a lesser extent, Apple Computer (Nasdaq: AAPL  ) . You can't win the Web 2.0 battle with a Web1.0 playbook, but that's exactly where AOL is going here.

Stop or my gaffer will shoot
When your parent happens to be a major player in filmed entertainment, logic would dictate that you have an edge in video on demand. You have proprietary content that is recognizable. You have slick production facilities to create unique entertainment. AOL is armed with advantages. Unfortunately, those may very well be disadvantages when it comes to competing against YouTube.

Even as the dot-com juggernauts are trying to sell TV-show episodes and music videos, consumers have no problem bypassing those offerings to check out a skateboarder wiping out or a hamster stuffing his cheeks with grub. Viral videos aren't about lavish production values. There's a charm to the rawness of someone recording a roller-coaster ride on a camera phone, or a pair of lip-syncing teens making idiots of themselves with a digital camcorder in a poorly lit basement.

YouTube is serving up 100 million videos a day. Did the former PayPal executives that launched the site just get lucky, or is it only a matter of time before the big guns of the Internet's search engine heavies catch up?

Personally, I believe that AOL, Google, and Yahoo! are bent on crashing the party -- but they're driving to the wrong house. Consumers aren't warming up to tollbooths and ad breaks with YouTube around. Even if one were to snap up YouTube and euthanize the model by monetizing it in cumbersome ways, there are dozens of YouTube wannabes ready to take its place.

Dissecting a disruptive technology
The big boys are better served by learning why YouTube became an overnight sensation. It did so by zigging when the industry veterans chose to zag. It thrust the content-creation burden on its users, who welcomed the chance to become viral video stars, instead of tapping major studios. It went for an open access model, limiting invasive registration efforts to folks who want to submit videos or rate the submissions of others. It's a completely free site, giving visitors the ability to explore everything the site has to offer on their own terms.

More importantly, YouTube learned the lessons of being viral. The site allows outsiders to embed YouTube videos into blogs and websites. It gives props to those linking to the videos on YouTube itself by ranking the referrals. These potent practices may seem like heresy to the dot-com bellwethers, which dread sending users elsewhere -- much less providing the streams -- without financial compensation.

YouTube was -- and is -- simple, free, and transparent. How can anyone expect AOL to ever approach the audience that YouTube commands for a Sussex playground stunt gone wrong with a dated, ad-instensive stream of an old Wonder Woman or Welcome Back, Kotter episode? It won't. It can't.

Companies like (Nasdaq: AMZN  ) , Movielink, and CinemaNow are working on retail digital distribution, too. That model may work if it's connected to the television set, where folks are used to paying for content. But if you jump ahead a few years, once the "last mile" of easy broadband connectivity is laid out to even more homes, something as simple as YouTube may grow to disrupt the value expectations of all video content.

The YouTube model isn't perfect. It may eventually turn to more ambitious advertising to monetize its popularity, especially if an IPO forces the issue. That may not be such a bad thing, especially if YouTube follows smaller players like Revver and Brightcove in sharing some of the ad revenue with the users who are uploading the more popular clips.

Between the Welcome and Goodbye
AOL is so far behind the YouTube model that it either doesn't grasp the gravity of YouTube, or it's as pompous with its proprietary offerings as it was with its dial-up service. I'm hoping that neither proves true in the end. At least it's a humbler AOL at play here; it's linking freely from its portal to videos served elsewhere. That's a bold admission that AOL doesn't have all of the answers, but it nonetheless needs to ask better questions.

How do you top YouTube? How do you stop a runaway train? If the answer doesn't start with a model that is simpler, freer, and more transparent, cut your losses and head back to the sandbox. If you're overthinking things, you'll never stand a chance against a disruptive technology.

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Longtime Fool contributor Rick Munarriz is a huge fan of online multimedia but he does not own shares in any of the companies mentioned in this story.The Fool has a disclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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