Global Insight Perspective | |
Significance | Google is paying US$1.65 bil. for a company that is barely two years old with no guaranteed major revenue base. |
Implications | There is bound to be a radical deviation from YouTube's business model as Google's involvement means YouTube can no longer flagrantly violate copyright on the content it offers online. |
Outlook | Regardless of whether the takeover of YouTube is meant to complement Google video search, or to obliterate a key rival, Google has bought its way to dominance in the online video market. |
Google has announced that it has reached an agreement to pay US$1.65 billion for YouTube, the internet video-sharing sensation that has attracted enormous patronage in its 20 months of existence. Describing Google and YouTube as "natural partners", Google said that the two companies will continue to operate independently in their quest to organise the world's information. "The YouTube team has built an exciting and powerful media platform that complements Google's mission to organise the world's information and make it universally accessible and useful," Google chief executive Eric Schmidt said.
YouTube began in February 2005 as a website for sharing video on the internet. Since then, the company has grown into one of the most popular social networking websites. It reportedly has an estimated 72 million individual visitors each month who view about 100 million videos per day. The takeover deal was preceded by a raft of new parallel distribution deals for content. YouTube signed a distribution deal with Universal Music Group and CBS while Sony signed deals with Sony BMG and Warner Music to offer music videos.
Outlook and Implications
The Quest for Dominance: For Google, the acquisition could well help it to prop up its video search activities either by complementing its business, or obliterating a key rival. Despite fears and concerns that Google and new wave telecoms companies would revolutionise the telecoms landscape, recent trends suggest that the old telcos would remain dominant in the market for much longer. For instance, although eBay's Skype has over 100 million registered users, its chargeable VoIP business case has yet to create an upset. Likewise, without the benefit of first-mover advantage, Google's foray into the VoIP market and its Google Mail activities have not managed to replicate the success of its search engine business. Similarly, in the case of its video search activities, YouTube has clearly stolen the show, relegating Google video search to the background in the race to become the website of choice for online video content. Consequently, regardless of the outcome of the takeover, Google has bought its way to dominance in the online video market (see World: 13 September 2005: eBay Acquires Skype for Up to US$4.1 bil.).
YouTube's Fate: The takeover of YouTube, a company that has no guaranteed major revenue base, exposes serious questions about the company's business model. Prior to the deal, YouTube specialised in allowing users to upload virtually any video content online without regard to copyright issues. The allure of video social networking attracted users in their droves, helping create a community of video sharers online. Importantly, YouTube's assumed insignificance in the IT market discouraged original copyright owners from pursuing copyright violation lawsuits against the firm. But with Google in the driving seat, the stakes are much higher and copyright violations can no longer be ignored. If the fear of lawsuits forces Google to censor much of what attracted people to YouTube, the latter's business case would be left in tatters.
Advertising Paradise: A reinvigorated Google video search, free from the competition from YouTube, would create a veritable platform for online video content. Interestingly, the deals with CBS, Sony BMG, Universal Music and Warner Music suggest the company may well be seeking rights for video content that are likely to entice users to the Google video search functions. In an era of always-on internet access, sought-after online video content could become a perfect magnet to attract advertising revenue.