YouTube has a 45 percent share of the online
video market, which is more than its top four competitors
combined, according to market trackers at Hitwise. It has
mainstream cachet, as page one stories about the impending
Google deal in both The New York Times and The Wall Street
Journal aptly demonstrated. And, not even two years old, it
has a start-up momentum unheard of in any Internet company
not named Google.
Responding to this combination is going to be tough for
Google competitors like Microsoft and Yahoo. Should they
build on the video services they already have? Should they
make their own acquisitions? Either way, there's no easy
answer.
"There doesn't seem to be an obvious property out there for
Yahoo or Microsoft to go after for an acquisition," said
Troy Mastin, an analyst at William Blair & Co. "I think an
obvious response does not exist outside further investment
in their internal properties."
"I'm scratching my head trying to figure out who they
(Microsoft and Yahoo) would buy," added Danny Sullivan,
editor of search industry blog site Search Engine Watch. "I
think Microsoft will try to build up their existing video
service and make it as strong as they can. I expect Yahoo
will do the same thing."
That would mean a serious uphill climb. Social networking
site MySpace, which is owned by News Corp. and has an
advertising and search deal with Google, is ranked second
for online video search, with more than 20 percent market
share. That's followed by Google Video (which will continue
to exist after the YouTube deal is completed) with about 10
percent share, Yahoo Video with 6 percent and MSN Video with
nearly 6 percent share, according to Hitwise.
Yahoo declined to comment on its plans in light of the
Google-YouTube merger, while a Microsoft spokeswoman said
the company would focus on its in-house efforts with its
Soapbox on MSN video sharing site, which it launched in beta
form last month.
"Microsoft evaluated acquiring this type of technology
several months ago, and decided to build our own offering,
focused on driving better customer and advertiser
experiences through integration with Microsoft assets and
services that reach an estimated global audience of 465
million consumers," said spokeswoman Whitney Burk in a
statement. "We are excited about the potential we are seeing
in the beta of Soapbox on MSN and believe building our own
solution is a more cost-effective way to compete in this new
space."
Microsoft is getting some outside help, though. On Monday,
video search provider Blinkx said it signed a deal with
Microsoft to power video search on parts of MSN Internet
sites and Live.com.
Still, Karl Heberger, advertising director for eBaumsWorld,
a video site that offers homemade movies as well as games
and other content, predicted a gloomy end for anyone trying
to compete directly against YouTube.
"Competitors who rely on the same setup as YouTube," said
Heberger, "where it's all user-generated content, they might
be in trouble facing a Google-YouTube team."
Of course, baked into all these predictions is the
assumption that online video really is the next big thing in
Internet content and that its popularity can translate into
advertising sales. Certainly, Google's executives think
that's the case and were willing to spend big on YouTube,
despite having their own video service and a reputation for
steering clear of major acquisitions.
"Microsoft already signed a deal with Blinkx, and (Yahoo
Chief Executive Terry) Semel is a movie guy," said Stephen
Arnold, author of "The Google Legacy." "Google was the odd
guy out (in content). Now it's not."
Google has the data centers that can help cut YouTube's
prodigious bandwidth costs and is likely better equipped to
solve technological hurdles related to filtering out
copyright and pornography.
"Google has the infrastructure and bandwidth to drive down
those costs, and Google has a way to monetize it," said
Arnold. "It produces an upside in revenue with no
significant cost impact."
Small YouTube competitors--either because they think they're
now great acquisition targets or just because they love
being underdogs--profess being excited about the Google
acquisition.
"These are exciting times," said Steven Starr, CEO of
Revver.com.
Entertainment conglomerates have already shown a willingness
to shell out big bucks for some of YouTube's competitors. In
August, Sony paid $65 million for Grouper, a company with no
profits and less than one percent of market share.
That acquisition led many to speculate that YouTube would
easily fetch $1 billion. Turns out, that was a lowball
estimate. Now the value for every other video-sharing
company is rising with the purchase of YouTube, said
analysts.
"I would think now companies like Guba and Revver may get
purchased in a reactionary move," said Josh Martin, an
analyst with the Yankee Group.
"Other media companies aren't just going to cede (the
market) to Google because it bought YouTube," said Greg
Kostello, CEO of video-sharing site vMix. "I think they are
going to be willing to pay a premium for companies with
either traffic or the tools to compete with Google."
"This is the first time in history where people can shoot,
edit and distribute video," Kostello added. "Video is the
most powerful mass media there is. (Google's CEO Eric)
Schmidt said that Google will continue to make acquisitions
in video, so Google isn't finished here. I think this is
very, very early (in) Internet video."
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