• by Mike Cassidy , June 25, 2007

Google rocked the online world last November when it announced that the company had brokered a deal to purchase YouTube, the upstart that had become the go-to site for video on the Web. Launched in December of 2005, YouTube was created with the idea of providing the means to share one's digitally captured video snippets with the world. Whether thought-provoking, disgusting, hilarious, or a waste of time (not to mention sometimes pirated), anything was possible through this marriage of video and the company's online platform. At a level of over 100 million streams a day, and with no less than 200 million eyes checking YouTube on a regular basis, it made perfect sense that Google would recognize the enormous advertising potential and purchase the company.

Naturally it would be only a matter of time before Google announced an innovative plan to rework YouTube and develop an advertising model. But the questions still remain. Would it go the pre-roll route, or perhaps embrace unique content sponsorships? The most exciting part of this acquisition was the blank slate being acquired. YouTube -- a Google company -- had the opportunity to take a leadership role and bring online video to the forefront of the advertising business. There'd be no shortage of advertisers itching to get onboard, as many packaged goods, telecom and financial service companies were already beginning to create Web-only video while, in the meantime, leveraging their broadcast assets. Industry insiders contemplated any number of exciting possibilities, not just for the present state of online video, but for the future of interactive entertainment as a whole. And with a company like Google at the forefront, a well-executed plan would undoubtedly follow.

But the months have passed with no major announcements. There has been a lot of speculation on whether pre-roll would be incorporated into the YouTube offerings, which at this point has been denied, but not completely ruled out. There's no question that YouTube holds incredible potential for advertising revenue, and yet it seems that today Google has not been able to harness that potential. What then drove the company to pursue the purchase of the company in the first place? Leading up to the acquisition, articles about YouTube were a regular part of my reading. The founders were on "Good Morning America," and the company was regularly featured in the national press. However, it seems as though YouTube has lost some of that luster, and other companies like Joost are starting to become the de facto company to reference when talking about online video. Perhaps it is a question of priorities. Does Google think its resources are better spent focused on the DoubleClick acquisition? Has the corporate mandate been to focus more on offline media opportunities, including those test programs already underway with print, radio and broadcast? Yahoo has successfully launched the Panama business and Microsoft is pushing Live Search. In response to those initiatives, is Google reallocating resources to prepare for Web 3.0 when it comes to search?

On the other hand, when your market capitalization is $163 billion, (which is greater than the capitalization of GM, McDonald's and Home Depot combined), a $1.65 billion acquisition for a company and opportunity like YouTube is still a no-brainer. When you are being valued -- or overvalued, depending on who you talk to -- Google can afford to acquire an asset to sit on and/or keep out of the hands of others until it is ready to act. Online video continues to garner attention; both advertisers and publishers constantly discuss it. However, there have been relatively few advances in the field over these last six to nine months. There needs to be one, if not a few, companies with the clout to take a leadership position and set online video in motion for what the product will look like in 2008, 2009 and well beyond.

There is still time for YouTube to take this position, but if it doesn't soon, someone else will. So while YouTube is the first name that comes to mind when you think about online video, there are no guarantees it will continue to be. After all, Friendster held that same distinction upon its founding when it came to social networking -- until a few guys in California came up with this MySpace idea.