'Rock solid' model
"I couldn't be happier with the move," said Greg Verdino, VP-director of emerging channels at Digitas. "The AdSense model has been rock solid for Google, and now I see them extending that model into video."
"We've been in discussions with YouTube to determine how we can ingratiate ourselves into the user-experience and not disrupt it," said Sean Finnegan, U.S. director, OMD Digital. "You cannot deny that great a volume and that big a community."
But, he added, Google's presence does make his team more comfortable doing deals with YouTube. "With the likes of Google, we do have a deeper comfort that people that understand our programming guidelines are involved in the buying process."
Some industry watchers are struck by the potential clout YouTube will give an already powerful Google. "When Google invested in MySpace, they made [Fox Interactive Media President Ross] Levinsohn look amazing, and they got [Viacom CEO and one-time MySpace suitor Tom] Freston fired," said Renny Gleeson, managing director of Carat Fusion's New York office. "Now, with YouTube, Google poses a great threat to agencies and networks. Instantly they're looking at a massive amount of inventory."
Huge inventory boost
"The real key here is advertising," said ComScore Networks analyst Michael Rubin. "For a cool $1.6 billion, Google just boosted its ad inventory tenfold."
YouTube is in the second phase of a three-phase monetization process, said Jeff Lanctot, general manager of online-ad agency Avenue A/ Razorfish. "The first phase was getting untargeted banner [ad] inventory on the site, which was a good start," he said. "The second phase, which they're in now, is filtering the video content enough to know what content is offensive and what content violates copyrights. The third phase -- and where Google's expertise is going to prove invaluable -- is in understanding the actual content of the video in order to contextually target ads." By Mr. Lanctot's estimation, this third phase is roughly a year away.
YouTube's website attracts a larger share of visitors than all its rivals combined. For the week ending Sept. 30, YouTube was responsible for a full 47% of all visits to video websites, according to Hitwise. YouTube's No. 1 share was more than double that of MySpace Videos, which had a 22% share. Google Video came in with a comparatively puny 11% share.
Different pecking order
ComScore, however, shows a different pecking order when it comes to the number of videos those visitors watched. In July, Google served 60 million -- or 1% -- of all video streams online, according ComScore Video Metrix. YouTube, meanwhile, served 649 million -- or a whopping 9%. For context, MySpace served 1.5 billion streams, or 20%, while Yahoo served 812 million, or 11% -- of all videos during the month of July.
With this deal, "Google shows they're aggressive and ready to make the deal when they need to," said Ellen Siminoff, former Yahoo senior VP and now CEO of search marketing company Efficient Frontier. "They said, 'We're not winning in this space,' so they did what they had to do to put themselves in the lead."
Michael Koziol, exec VP-North America at Nurun/Ant Farm Interactive, expressed concern that Google could squeeze the video ad market if it lollygags with an ad strategy for YouTube. "With other services like Google Maps, Google has a tendency to take its time figuring out exactly what consumers will be happy with. I wouldn't be surprised if it's two years before we see a meaningful ad strategy."
Not to worry, said Sarah Fay, president-U.S. of Aegis' interactive ad-agency network, Isobar. "If Google takes its time, that's their problem. There are plenty of opportunities out there."
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