The acquisition of YouTube back in 2006 for $1.6B at first seemed odd: Why did Google pay a huge amount of money for a free service of low quality video?
Google, making profits out of advertising, is eyeing the television crowd. The closes thing to TV in the Internet is YouTube, now hugely popular to the Internet crowd. Broadband pipes are larger and able to stream high definition videos to browsers and web TVs, YouTube promo videos are a cool direct marketing tool and content-related Google Ads generate more profits for Google. However, the most disruptive effect of YouTube is that it has established the mentality of free video content, undermining traditional video providers like satellite and cable TV.
Google is slowly encircling TV and video providers (satellite and cable) by shaping the end consumer mindset. Google also is in the unique position to bundle entertainment content (music & video) with real time web search results, news feeds and information from social networks. Like the old TV guides that had all the latest gossip news along with the TV program, Google can craft an all-in-one neat dashboard, complete with movies, music, gossip, news and online gaming delivered to your browser, TV set or smartphone. The first attempt is Google TV, a consumer-friendly package in the form of a TV set and set-top box.
We believe that the terms that Google has chosen to enter the content delivery business with are:
- Enter the consumer TV and telephone market as a rich content provider or a content distributor
- Use YouTube as own content distribution network and Google Voice as VoIP platform through Google TV
- Form alliances with the entertainment industry, taking advantage of collected information related to copyright violations in exchange of rights to broadcast content
- Bundle real-time social networking buzz, email and online gaming in one package
- Expand online advertisement on all distributed content
- Force service providers in a revenue-sharing scheme to monetize offered services
Evidence of this strategy includes:
- YouTube (2006), Omnisio (2008) and Episodic (2010) acquisitions for video processing
- Acquisition of Angstro (2010) for social network analytics
- Google TV consumer offerings
- Partnerships with Amazon Video On Demand, Netflix
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