October 10, 2006

Google’s Great Leap Forward?

Date Unique Visitors (000)
Aug 05 2811
Sep 05 2933
Oct 05 3602
Nov 05 4484
Dec 05 5771
Jan 06 9529
Feb 06 15185
March 06 22295
April 06 26938
May 06 42437
June 06 49371
July 06 63411
Aug 06 72080

Despite online entrepreneur Mark Cuban’s exhortation one would have to be a “moron” to acquire YouTube, Google’s decision to buy the surging video-sharing site on Monday for stock options potentially has enormous ramifications for the online media industry.

First, it propels Google in video search. The agreement to acquire YouTube came after a number of Google’s main competitors expressed an interest, including Yahoo, News Corp., and Microsoft.

Google has long dominated the online search advertising market and its lead has only increased over the last year. For some time, Google apparently has been developing a strategy of moving beyond text-based ads to those that appear on online video, where audience numbers are projected to soar over the next decade.

Last December, it acquired a five percent stake in AOL, which has made video a key component in its plan to attract more visitors. Now with YouTube, which has seen its unique audience grow by roughly 2464% this year, it is estimated that Google properties will now account for over half of all visits to online video sites.

But questions still surround the agreement, which Cuban and others have posed. Perhaps the most uncertainty is whether Google will be inviting copyright lawsuits from content owners. For now, Google says it will take down any video when the content provider notifies the company.

Next, YouTube’s appeal so far has been built largely around its largely ad-free content. How will its audience react, then, it if it perceives the site has lost too much of its amateur sensibility and becomes more commercial? With its relatively low overhead and relatively small start up costs, will we see another YouTube eventually take its place?