Google, YouTube & the Future of Video Advertising

17 Comments

As the announcement of the Google-YouTube deal unfolded last week, it was very interesting to follow the responses from various players representing the traditional media establishment. While I won’t rehash them all here, suffice it to say everyone in Hollywood and New York media circles seemed to be stunned. And as everyone began to digest all the strategic implications of the deal, one common theme seemed to thread itself from one reaction to another… fear.

It wasn’t so much the fear that Google’s pending acquisition of YouTube would give it 60% share of the online video market post-deal. No, what really seemed to worry the old guard (extending all the way to even Microsoft’s CEO, Steve Ballmer) was that Google could eventually *control* the flow of dollars generated via online video advertising. After all, as more and more videos are placed online and viewers follow (by not only consuming, but also producing), all media companies reliant on video as their content source will inevitably see their revenues increasingly dependent on online advertising. And if Google is there as the gatekeeper, well… “Mission Control, we have a problem”.

So why would the old media guard fear Google in the race to dominate online video advertising? The established media conglomerates, after all, have huge ad sales operations, entrenched in decades-long relationships with Madison Ave, who in turn have all the big brand advertisers in their pockets. The U.S. TV industry alone yields $60 billion in ad dollars every year, as a result of those closed-circle relationships.

Is it because Google just opened up a new 300,000 square-foot New York outpost (aimed squarely at Madison Ave)? Is it because Google now generates $10 billion a year on 12-word text-based Pay-Per-Click ads? The answer is “yes” to both, but only partially. The real answer lies in the fact that Google has what some would call “an unfair competitive advantage”, when it comes to the huge opportunity of monetizing online video inventory. And this unfair competitive advantage is a result of the way they developed their AdWords & AdSense platforms over the years.

Google’s weapon is their existing relationships with hundreds of thousands of small-to-medium-sized businesses (“SMBs”). These same advertising customers, who are now active bidders/buyers of text ads on Google’s ad platform, will suddenly have the opportunity, for the first time in most cases, to become video advertisers. Up until now, with the exception of some local cable advertising, most SMBs never had the budgets or the capability to advertise via video (e.g. on TV).

It’s critical to remember that the backbone of Google’s auction-based, Pay-Per-Click ad platform was primarily built on these hundreds of thousands of SMBs, and not the Fortune 1000 brands that traditionally advertise via Madison Ave. In fact, Google’s Madison Ave push for brand advertising is just now getting started in New York. This fact is counterintuitive, and it distinguishes Google from nearly all the other players in the media landscape. Even the largest media conglomerates in the world do not have hundreds of thousands of advertisers… they have few thousands. And even for those who do have tens of thousands of advertisers, like the ones who own local newspaper franchises, their ad sales operations are not coordinated and centralized for wide-scale deployment… as is Google’s.

One of the key reasons why Google’s existing relationships with SMBs will prove so critical to the future of video advertising has to do with user-generated content. The big question that everyone is asking with respect to Google’s deal to acquire YouTube boils down to the issue of how to monetize uncontrollable, often provocative user-created videos in general. Big corporations are extremely sensitive to any content that could potentially “pollute” their brands. SMBs will be less sensitive… they will weigh the risks against the newly-found opportunity and value to advertise via video. As long as Google can get those ads in front of the right customers within the desired geography and/or demographics, the SMBs have a new path to reach customers and reap ROI (particularly for those seeking to attract younger customers). And just like they did with AdWords/AdSense, aggregate enough small ad buys and Google will be a position to generate billions in online video ad dollars. Last but not least, major brands will follow in time… although they will be kicking and screaming all the way (just like they did with PPC).

17 Comments

Manish Jaiswal

Great to read Bob’s note. (May be too late to comment, but I though I should)

However, it is always good to talk about the Headline News and do the post event Analysis, but I really need to know or want to read if there is an authentic data to prove PPC Ads in Google or Video Ads at YouTube is working for SME / SMB segment or a small company.

Predicting future of YouTube as great money spinner, is alright, but is it really changing the landscape / revenue potential for any known SME/SMB companies. Honeslty, we spent over 100K on Google (PPC) for InsuranceMall with limited or no success, where as traditional Ads are doing just fine. However, I am fan for SEO or Graphic Ads as they work well and adds to the brand, but PPC, is an absolute No-No.

So, may be the future of Google or Youtube is not as strong as what is being predicted here. Indeed, Google is a path-breaking company, because of mosty Free Service, but other than Ad revenues (which I must agree is huge, due to PPC as new phenomenon), they still have to show another lateral working revenue model.

Cheers !!!

Manish K Jaiswal
manish@bonsaiinternational.com
http://www.insurancemall.in
http://www.manishkjaiswal.com

Manish Jaiswal

Great to read RY’s note. (May be too late to comment, but I though I should)

However, it is always good to talk about the Headline News and do the post event Analysis, but I really need to know or want to read if there is an authentic data to prove PPC Ads in Google or Video Ads at YouTube is working for SME / SMB segment or a small company.

Predicting future of YouTube as great money spinner, is alright, but is it really changing the landscape / revenue potential for any known SME/SMB companies. Honeslty, we spent over 100K on Google (PPC) for InsuranceMall with limited or no success, where as traditional Ads are doing just fine. However, I am fan for SEO or Graphic Ads as they work well and adds to the brand, but PPC, is an absolute No-No.

So, may be the future of Google or Youtube is not as strong as what is being predicted here. Indeed, Google is a path-breaking company, because of mosty Free Service, but other than Ad revenues (which I must agree is huge, due to PPC as new phenomenon), they still have to show another lateral working revenue model.

Cheers !!!

Manish K Jaiswal
manish@bonsaiinternational.com
http://www.insurancemall.in
http://www.manishkjaiswal.com

Harry Mower

Isn’t the value of Google’s advertising model the fact that it allows SMBs to accurately target ads within the context of things that are relevant to their business? Unlike Text, video is not self describing. You’re relying on people to accurately tag the content. Have you ever seen the metadata associated with a UTube video? It’s barely relevant to anything let alone what is actually in the video. I think this is ultimately the flaw in the entire Google model. The more they move away from their core-competency of selling ads in a highly accurate search domain the more they will dilute their effectiveness opening up opportunities for other players.

Rahul Pandhe

The YouTube acquisition is a prime example of Google trying to squeeze their ad-click model for the last dollar. Nothing wrong with that.

What I am afraid of is this:
Majority of the ad-clicks Google gets, I bet, is during prime business hours. Which means people are supposed to be working at that time. This is all great for static pages with content to read but when you throw in Video in the mix, I would like to see how a boss can justify having his employees watch video at work. The Work-Life-Balance ends at reading news, research, shopping products. With video we are crossing the limits and also pushing the employers networking infrastructure due to bandwidth requirements. I am already seeing many companies prohibiting streaming video from the web.
So most of the video viewing will still have to happen during prime TV time, so Google will be competing with the big networks to keep folks on their computer watching amateur video.
That brings up a question : are the users popularizing/watching YouTube 24 hours just kids without credit cards?

Its interesting where this will all lead to.

Thus Google can only pat their ego by YouTube acquisition but it would be unwise for them to bet their future direction entirely on this acquisition. They obviously know better.

Keep focusing on ideas that get new dollars to keep the Wallstreet happy and the stock price inflated, everything else is a community service that must happen.

C

small business owners are hesitant to try new marketing platforms with which they know little about (I used to be one). TV is one of those. Like the one poster said, you need to PRODUCE a creative ad that will get the attention of these younger viewers. Most bar/restaurant/retail places don’t want to go thru the cost and hassle of learning this. They JUST are now starting to get comfortable with the internet, now we’re expecting them to quickly migrate over to video?

Not gonna happen.

Carlos Granier-Phelps

Great post. I wrote about an article about this before the actual purchase took place – it’s on my blog: http://red66.com/blog/2006/10/why-google-should-buy-youtube/

GoogleTube must have the traditional big players really worried. Not only is Google ready to monetize user-generated-content (which the big players can’t) but it’s also ready to dominate both the online and traditional playgrounds of old media.

Google has the technology to store content, play it back, contract and display advertising on it and, most importantly, measure the reach and effectiveness of these ads.

george

I think that if they put ads on the videos, users will immediately defect to Yahoo, MySpace or whatever.

roys21

Chetan, one possible solution to the issue you raise is the use of stock commercials, similar to what Spotrunner now offers. This model has it’s downsides, but has some potential for SMBs that can’t afford to produce their own video ads.

Robert Young

Bazily,
I have to disagree… I’m confident that most SMBs will find video ads to be a unique messaging vehicle for each to convey their selling propositions.

Anonymous,
I never agreed with Mark Cuban that only a moron would acquire YouTube. The exact opposite in fact.

Sramana,
I agree, of course, that Google possesses other comparative advantages… and further agree with the factors you put forth.

Dave,
Thinking of doing the same myself ;-)

Chetan,
You raise an excellent point. I firmly believe that the videos produced by SMBs will be self-generated (without professional assistance) in most cases… much like the user-generated videos themselves. Doing so, of course, will keep the costs low and manageable.

Thanks for the comments.

Chetan

Maybe I am the first person who tend to slightly differ from Robs opinion. Google is SMB friendly, well said. For adSense, the ads delivery was mere text which could be coined by anybody. For Video ads, SMBs have to create their own content and should be professionally done to attract viewers or will those Ads be another archive of pirated and mashed up videos ? Can SMBs really afford to spend so much on creating their own ads ?

Dave McClure

now that’s a pretty darn interesting post.
great writeup robert.

almost makes me want to go long Google again.. at north of $400 / share.

(almost ;)

Sramana Mitra

Robert,

I like your analysis. Is it, however, the SMB edge only that places Google well? Is it also not the fact that they are the only large company with the technical horsepower and financial muscle to develop the video equivalent of Adwords / Adsense? And with YouTube, they have a massively compelling experimentation platform. With enough trial, error, and computer science, this problem, I believe can be solved. But it still remains a difficult problem, and probably, it will remain out of the reach of the rest of the big old media players.
Sramana

Anonymous

And you bloggers didn’t realize this before they bought YouTube. Everyone was saying how no one should buy YouTube and if anyone does, they are a “moron”. Well now you guys are changing your tune and saying how great a deal it was. Saying that it paid for itself because their stock price went up and raised their market value 2 billion.

Doesn’t make sense to me how you all can do a 180 on the issue especially when you do not have any facts and are only speculating. Not trying to single you out as many other bloggers are saying the same thing.

Bazily

I don’t think video advertising of the concept of YouTube translates to 90% of SMB that are selling CPA services or truck parts (http://www.fleetoil.com) online, like it does with Adwords.

That’s the reason Google has to be on Madison Ave with the bigger consumer brands that are selling products to the younger demographic. I doubt anyone will ever find their lawyer (unless it’s personal injury) on a YouTube ad (right before a car crash video).

Comments are closed.