Google bought YouTube for $1.65 billion and claims one day it will make money from advertising, but for now it bears the rapidly increasing cost of storing and serving billions of videos most of which are watched by nobody. Google has courted similar unrequited expenses to bring users free business software, email, WiFi, a forthcoming telephone, a bruitednational wireless network, all in theory to be supported by ad revenues.
A law of nature that leads to fruitless spending? No, a law of corporate governance. With founders entrenched in a controlling position, such companies don’t see their luck for what it is and channel their winnings to shareholders. Instead they squander their abnormal returns hoping to make lightning strike again, and end up with a collection of low- or no-return businesses to show for their trouble.
