C as c St u d y 68:

CASE STUDY

Google and You Tub e Together The Next Advertising Platform?

Ever since Google bought YouThbe in November 2006, some have wondered just exac tly how Google was going to make the $1.65 billion purchase price worthwhile. Wall Street, on the other hand, had no doubts th at Google wou ld

make a killi ng, and Google' s stock p rice quickly shot up from the unp rece­dented $500 lev el for most of 2007 to th e su per-u npreced e nt ed level of $700 ill

November 2007, be fore settling b ack down to around $630 in m id-November. This gives Google a price/earnings rati o of 49, just shy of the moon, and a market cap ital­ization of $200 billion, wh ich is over 10 times th e market capi talization of Ge neral Motors, the largest car company on earth . Why does the Street value Google so highly , and wh at possibl y could the ske ptics h ave b esides sour grapes?

The answer from Googl e is th a t it plan s to turn the Web's largest reposi tory of

video, and the la rgest vid eo au dience share , into the next big , killer app for advertis­

in g, namely, th e largest advertis ing platform in history. Bigger than search, and bigger than tele vision. Just h ow much vide o does You'Iube have? To date, the estimat e is that YouThbe has about 5 million videos, repre se n ting abo ut 3 billion minutes of video This is growing at th e rate of abo ut 1 million videos a year; and if the stars a re right

and million s of video cameras keep working , in five years, by 2012, You'Iube will have about 10 million vide os.

How m an y people are attracted to these videos and for how long? YouTube claims about 130 million u nique visito rs per m onth , but several independent In ternet marketing firm s pu t it closer to 35 million m onth, with the average stay abo ut five minutes, vie wing on ave rage two vide os at a tim e. Only 2% of these monthly visitors view daily, compared to Yahoo, for in stance, wh ere 40% of visitors visit every day . Yah oo really do es h ave around 130 million unique visitors a month, who stay 011

average about one hour a visit to view con ten t , generating a whopping 37 billion pages views a m onth! Each pa ge iew is an advertising opportunity. Google has about

112 million unique monthly visitors, who stay less than 24 minutes, generati ng 10 billion page views a mon th , on th eir way to their destination Web site . Over 30 % of

Google visitors visit daily. So while You'Tube has grown exp losively, it stil1 has a way to go to ca tch Yahoo or Google an d lacks th e re ten tion time (page views) and frequency of visits found at th e major portals.

What You'Iub e needs is n ot just m ore content but quality content, content that is really inte resting and that draws millions of viewers back every day. Chances are th is do es n ot mean user-generated vide os, which typically have an average audience of around 10 people, are top listed for one day, then fall into oblivion. Really popular

us er-generated videos that get passed around th e Web in a viral ne twork m ay top off with a million viewe rs, but this is a rare even t and usually reserved for celebri ties

caught in com prom ising situations.

684 CH P TE R o n l in e C a n te n t d n d rA E d i ~

No, what You'Iube needs is expertly crafted video Where can elI'S \ ideo" I

T he answer is to have unique visitors uploa d snippe ts of Hollvv ood I

television shows such as The Sopranos, T he Colbert Report, and J on S (\ , I

Show . As y u learned in Chapter 8, this situation does cau se heartburn a no . ( , I

owners like Viacom , which is suing Google for $1 billion, a fair ch unl 0' (1

Many Google/YouThbe skeptics think the reliance f You'Iul» o t e ,.

s tole n copy righ ted material is a critica weaknes s, as bad as , say, the n 1 1 11 '

old Napster, a bunch of P2P networks, and BitTorrent on stole n music ; \1 cl \ II

what videos are You'Tube's 35 mi llion visitors watching? Are th ey pi imanlx I I

to YouTube becau se of the fun seeing their friends ' and rel at ive s ' goof) 11 '11" 1(1

or a re they wa tch ing pro fessional copyrighted videos? Vidme ter, ,I fllll l 11 t

online Video s, cla im s th at the clips wh ich have been removed for copyrioh t I

request of th e copyrigh t ow ne rs comprise on ly 9% of all videos on the. sir, '1](1"1,'

6% of tot al views. Cri tics point ou t thi s is a ast undercount of th e probl-n: tl( ( II

there is an ocean of copyrighted video on YouTube that copyrigh t ()\\ 111'1S I I . I I

request ed be re moved becau se th ey don't know its there, nd it is too cosux to ~I , I

You'Tube every ay for all the illegal material. Arguably, 25% of all (IU I tl" . Il

involves copyright film clips and/or copyrighted music, and possibly mo: ,]" I'

of to tal views. How large the number really is remains unknown But i I

enough to give skeptics of the Gcogle/ You'Iu be venture a reason W cro '

Setting as ide where the page views are com ing from, what is Coogle ' II)'

making a profit from this in vestm en t? The thinking n th e St reet is that t11/ pl' (

price of $1.65 b illion ind ica tes that Google expect to generate profits 0 ('\

m illion a year (assuming a 10% discount rate, an unending s tream at re vc1 I'

that people don 't get tired of videos and turn elsewhere). The formula (]Ol.',:

come u p with is advertising to the 35 million unique visitors. One problr » . I "

is that most user on the Internet expect video to be fre e and without ad. ' I I r c

response rat e to videos used in displ ay advertis ing is still nothing to II rite h(J!lj, · 'II)))

- j us t .4%, although twi ce as good as a regular banner ad. The sta ndard pi «-rol I,

that you ge t every time you want to watch something interesting has lUI ne-d () ,I

a big audience kill er. Half the vie we rs just hit the retu rn button a nd skip t11i \ ill' they wanted to see rather than sit through the video ad, or hit the "Skip this" butt )

To compensate for user ad video indifference anel dislike , Goo gle has ( 1'1 ( l I

with a new formula for success: a Flash animation overlaid on th e bot tom of tl« , ti, (

window, starting 10 se conds afte r the real video ro lls, and disappearing in 111 ~el (II u···

riser's site. Coogle research clai ms that 10 times more people click on th. s, (, t II ~

than standard banner ads (no great achievement given the low ra te of ba: I "I .«

u nl ess the use r cl icks on the animation, in which case they are taken t1J h, I h I

clic ks ) suggesting a 1% clickthrough rat e, and that fewer th an 10 900 closr tit' 1 1

window. T he video is pause d wh ile th e ad runs its ten seconds. How annoy in . I I

Set as ide user di ssa tis faction with video interruption, rernindin« t l» I (I

broad cast tel evision ("We in terrupt th is program to bring you an im porta n t rue ::, 1

Co nsider that b rand ad vertisers for the most part do not wan t their 1 1 I ~ ( r II'

messages alongsid e controversial user-ge n rated videos, and a lso clo not v, d I t I

m arketi ng m essages alo ngside content that has been lifted from b roadcast r f)\ r)

--

c (; s eSt u c: \' 68.'

and CDs for soundtracks. Recognizing this, Google plans to run its ads only on th e videos posted by content ow ners or partners like Warner Music Gro up (V\'MG) . Warner is the on ly big conten t owner to cu t a de al with You 'Iube. WMG will offer up its library of m usic videos and other pro gramming, su ch as behind-th e-scenes clips and interviews, for viewing on You'Iube, as well as for integrati on in to users' own creations. Tho ugh financial term s of the deal were no t revealed, WMG will receive a portion of dollars derived from ads served in conjunction wi th its m us ic videos and

user-ge nerated videos featuring it s content. The You'Ibbe/Warner partnership extends th eir recent agreement to cr eat e a dedicat ed channel to Paris Hilton to promote h er new Warner Bros . album. You'Iube has also struck alli an ces with NBC for

telev ision sh ows like The Office and The Tonight Show with Jay Lena on the video site. The res ult is tha t Google will h ave to make its $150 million a year in ad revenues

from the legitim ate, hi gh-quali ty content only, Really popular user-generated online

stars such as Lon elygirll15 have left YouTube in a huff because h er vid eos will not rece ive any ad revenue. In other words, if You'Iube con tin ues on the branded, legal content path, it cou ld alienate the very users who have made it popular, accord ing to JupiterResearch Analyst Em ily Riley . "If people come to th e front page of the site and it becomes commercializ ed," sh e said, "it 's going to be like going to th e mall or grocery store rath er th an talking to your friends." The You'Iub e audience is not the fan base for commercial advertising and capitalism run amok online, In a recen t episode, a commercial video clip posted for ESPN's Monday Nigh t Football television show was

prominently featured on You'Iube 's homepage. In a few hours, colorful comments posted by YouThbe users spiked with four-letter words, and denigrating American football in favor of the footie game played worldwide , were po st ed to the video page.

ESPN quickly with drew the ad and h as not been heard from sinc e on YouTube Maybe Wall Street has it all wrong?

Case Study Questions

1.� In your view, and experience on YouTube, will typ ica l YouTubeviewers accept advertising whilewatching the videos?

2,� What responsibility doesYouTube have in removing copyrighted material from its site?YouTube claimsit isin compliance with the Digital Millenium Copyright Act, which requires ownersofcontent to notifyWeb siteswhen their copyrightsare infringed,Why is this a good solution forYouTube buta poor solution forcopyright owners?

3� Assume you were a manufacturer of sporting goods, and wanted to use YouTubevideos asa marketing tool to establish your brand.What concerns would you have about usingYouTube?

4.� Google claimsthat usersare 10 times more likely to cl ick on its Flash animations at the bottomof the video screen than a standard banner ad. Do you believe this response rate is reasonable, and doyou believe it could be sustained over the long term of, say, five years?

SO URCES: "Gocq!eAimsto ~, I k YouTube ProfitableWith MI ' byMiguel Helh, New York Time, August 22, 2007; ..YouTube Launches VideoAds," by Rob Hoi Busi nessWeek.com, August 21, 2007;"YouTube'sFavorite Clip' byDanMitchell, New York Tir'1 0

April 7, 2007; "Portal Marketlnc The Big Four: by David Hallerm eMatketer, Inc.,March 2007' "Gooqle Will Face Chall"ng~s n Wake ofYouTubeAcquIsition," GartnerResearch, Octobe' 12 2006; "DoesYouTube Make Google a BigTarget for Copynqnt Suits, ' wensuee:Journal, Octob 11,2006; "Youfube Deal with Warner Pays Pros, not Little People: byKate Kaye, The CI,c, Network, September 19,2006