Does Google Want to Control Internet Video?

When Google bought YouTube for $1.65 billion in late 2006, there was a lot of speculation as to what the search giant was going to do with the fast-growing host for homegrown video. At least one observer thought that Google was moronic for making the purchase, especially for such a high price, given the potential for copyright-related lawsuits. Google recently tipped its hand, though, with major implications for the future of online video.

The first announcement was simple enough: Google Video’s search index would start showing results from YouTube as well as Google Video. That makes perfect sense, since it lets the companies play off each other’s traffic. Consider this: Google’s monthly audience in December 2006 was 108 million, while YouTube received “only” 38 million visitors in comparison. But if you want to compare apples to apples, Google Video drew only 15 million visitors in the same month. Also, users of YouTube spent twice as much time per session on the site as users of Google Video.

To judge from statements by Salar Karmanger, vice president of product management at Google, this is the first step in a longer process: “Google’s strength – and its history – is grounded in search and in innovating technologies to make more information more available and accessible…Over time, Google Video will become even more comprehensive as it evolves into a service where you can search for the world’s online video content, irrespective of where it may be hosted.”

So Google is building a comprehensive video search engine. This is no surprise. Yahoo and AOL already have separate video search engines. But neither of them owns such a huge source of online videos, and neither of them link to YouTube. That gives Google a massive advantage to begin with.

And once Google starts applying its own search algorithms to video, looking for and viewing videos online could become a lot more popular. Google vice president David Eun notes that “People will start finding lots of videos they never even knew existed.” There’s a lot more going on here than just the construction of a video search engine, though, as technically challenging as that might be.

Google and YouTube made another announcement about the same time that attracted some serious attention from those in the search community. Over the next few months, the two companies are going to introduce a system whereby those who upload videos to YouTube’s site will get to share advertising revenues. The details have not been worked out yet, but only those who actually own the copyright to the videos they upload will be eligible.

Share advertising revenues? Isn’t that putting the cart before the horse? YouTube doesn’t run pre-roll ads on its site. Well, more precisely, it doesn’t do that yet. Obviously Google has been looking at all the videos on YouTube’s site and realized that they’re ripe for the monetization. I have to agree with John Batelle, who pointed out in his blog that Google spun this story really well. “Instead of ‘YouTube to Run Ads,’ the headlines were ‘YouTube to Share Revenue With Creators.’ Well played, my man!”

Once again, I’d like to point out that Google and YouTube aren’t exactly entering virgin territory. Just look at Revver. It pairs videos uploaded to its site with advertisements, and splits the ad revenue both with the people who upload the video and the people who share it. And Revver isn’t the only site engaging in this business model.

The difference, though, is one of scale. Going to Alexa to compare Revver’s traffic to YouTube’s traffic turns up the fact that Revver ranks 2,734 in Alexa – and YouTube ranks fifth. I don’t know about you, but if I were an advertiser I’d take one look at that and know exactly where I’d want to invest my money.

The risk Google and YouTube are taking is that going to ads just might jeopardize all the lovely traffic that YouTube is currently attracting. At least one of YouTube’s co-founders seems to recognize that. Chad Hurley said they had resisted putting pre-roll ads on the site before because “we didn’t feel it was great way to build a community. We wanted to keep it pure.”

In fact, a recent poll conducted by Harris Interactive bluntly pointed up the hazards of becoming “impure.” The sample size was more than 2,000 adults, of which 363 were frequent YouTube visitors. More than three-quarters of the frequent YouTube visitors polled said they would visit the site less often if it started including video ads before every clip. Almost one-third said they would visit the site a lot less often.

So the trick, obviously, is to introduce the ads without alienating the community that YouTube has already built – a community that is used to seeing their videos now, without waiting for a pre-rolled ad. Hurley hinted that there would be several different types of ad spots, even ones that run as short as three seconds, but we will have to wait and see.

There is a very important connection between these two announcements. The two actions feed off each other in a way that can only be good for the companies’ bottom lines. Brian Osborne did a good job of summing it up for Geek.com:

“Incorporation of YouTube content into the Google and Google Video search index means more visitors to the YouTube web site. More visitors online means more online ad revenue dollars for YouTube. And if there’s one company that knows anything about increasing online ad revenue, it’s Google.”

Remember the numbers I cited earlier stating that Google gets more than twice the traffic of YouTube? Google’s search engine can funnel traffic to YouTube…which it then makes money from, thanks to ads running on YouTube. You don’t have to be paranoid to wonder if Google is going to start privileging videos from YouTube to turn up higher in the results than videos from other sites.

This move could also help Google make its video search engine more comprehensive by encouraging more people and companies to upload videos to YouTube. One Australian news company noted that many publishers don’t upload video to YouTube and similar sites because they can’t monetize the traffic with their own in-video advertising and banner ads. But what happens if you’re uploading video to YouTube and, as the creator, Google – excuse me, YouTube – gives you a choice of ads you can run with the video? And furthermore, what if one of those ads happens to be your own, because you have an AdWords-equivalent account as well?

When companies host videos on their own web sites, they’re often a lot more difficult for Google to index. Remember, search engine spiders really can’t see video because the current technology doesn’t give them any “data” they can grab onto. But if more creators host their video content on YouTube, it will make it easier for Google to determine the topics and popularity of videos. With all that content to work through, some team of Google engineers is bound to come up with an advanced algorithm that will enable the search engine’s spiders to make heads or tails of video content. When that happens, Google will have a huge advantage over the competition, especially with more and more people interested in online video.

Does this mean that Google and YouTube are going to put all the other video sharing sites out of business? Not by a long shot. Look at search: somehow Yahoo, MSN, and Ask keep hanging in there, and tons of vertical and alternative search engines have sprung up in the shadow of Google, offering users depth and focus in exchange for Google’s “grab everything” approach. There is no question that experiments by other parties will continue.

On the other hand, this has to make other video sharing sites that offer incentives to their creative users more than a little nervous. As one commenter has observed, with Google’s deep pockets behind it, YouTube could even offer 110 percent of advertising revenues earned per video for exclusive content as an incentive, at least for a while. If it did that for long enough (and made it clear that it was intended only for an introductory period), habit might take over.

If that happens, the best model as far as market development might be either online auctions or MP3 players rather than search. With MP3 players, Apple came to the market late with the iPod, but it was so user-friendly that it all but took over. With online auctions, eBay was one of the first, but enough people started using it that no other auction site has managed to get much of a foothold. Go ahead, test yourself; Google returns more than 25 million results for the phrase “online auctions” (without quotes). Without looking, can you name even five of them, not counting eBay and IT Marketplace? I remember Yahoo Auctions, Amazon Auctions, and Ubid; I also know there’s a site focused on bead-related auctions, but I can’t remember the URL.

There are further implications to consider, especially if Google incorporates Google Checkout into YouTube (such as paying for premium content or to see videos without the commercial pre-roll). However you look at it, the two announcements from the world’s biggest search engine and the world’s biggest online video site will change the way we look for and view videos online. Viewers may be annoyed by the ads once they go live, but the changes could be excellent news for content creators, advertisers, anyone searching for videos online – and of course, Google’s and YouTube’s bottom lines.

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