How Google will make YouTube pay

nervous, computer geek giggles. But these two have the right to be happy
after Google, now famously, acquired YouTube last week in a $1.65bn (£880m) all-share deal.

Yet, the massive amount Google has paid for the site has caused national
newspaper commentators to hark back to the days of the dotcom crash,
when astronomical sums were paid for young unproven start-ups. How will
the search help monetise YouTube, if at all, and will any corporate
interference ruin the anarchic, personal feel it has made its name
on?

Suranga Chandratillake, founder and chief technical officer of video
search engine blinkx TV, believes that Google's "single biggest reason
for buying was search advertising".

Joanna Shields, director for partnerships at Google EMEA, insists the
acquisition "is at the core of what we do", citing the deal this August
with MySpace as another example of "an existing opportunity of
monetising user-generated content".

She adds: "Advertising will be a major source of revenue. It is a
compelling media platform for users, content owners and
advertisers."

Right noises

What form of advertising this will take is still not clear; it is still
testing advertising models for video, though so far has held back from
using in-stream advertising in the testing phase of its own product
Google Video.

Certainly, Google is making the right noises about branching out from
its core in search advertising. Last week, the company announced that
part of its best practice funding system for remunerating agencies was
to include a 10% "kicker" for non-search advertising. But there are some
who question whether Google's main incentive in buying YouTube was to
increase display revenues. Chandratillake cites a defensive element to
the buy. A rival buying YouTube means Google would have missed out on
providing search for the massively popular site or would have had to
sign another deal like the one with News Corp's MySpace, which cost
$900m.

Content provision

Jupiter Research senior analyst Nate Elliot believes Google's
acquisition, though perhaps the right move, is an admission of defeat by
the search engine, which launched Google Video earlier this year. "They
started at the same moment in time, with the same strategy. Google has
the brand and capability to drive endless traffic, yet YouTube is by far
the largest video site online."

Defeated yes, but Elliot can see the synergies between Google and
YouTube, in terms of content provision. Last week, YouTube was not only
in the news for the Google takeover, but it also agreed partnerships
with content providers CBS, Universal Music and Sony BMG, adding to an
existing partnership with Warner Music Group.

The Google Video and YouTube brands are to stay separate for the time
being and Elliot suggests Google could make the most of these brands by
making Google Video a place where consumers could buy premium content
"while YouTube could be consumer focused with free content". Either way,
Google is positioning itself as a content provider with a wide-reaching
distribution platform.

Another issue for Google to contend with is retaining the ethos of
controlled anarchy that has made YouTube such a hit. YouTube, which has
been accused of flouting copyright laws, has been dealing with the issue
by immediately taking down any video after receiving a complaint, and
Google insists it will continue to be vigilant about any infringement of
copyright laws. With content providers like Universal Music signing up
with the search engine, maybe the copyright controversy will go away,
but whether YouTube will retain its popularity is a different
matter.

As Ed Ling, strategic development director at I-Level, points out, like
the News Corp acquisition of MySpace "it almost legitimises it". People
questioned whether News Corp's commercialisation of MySpace would drive
people away and now the same question is being asked of YouTube. It
would explain the video site's reluctance so far to dive straight into
the interruptive model of advertising. For Google's part, Shields will
not be drawn on the subject of YouTube losing credibility, but repeats
the Google mantra: "I would say the mission is to organise the world's
information and we are building the best, broadest database of content
we can."

With convergence around the corner, this collection of content will be
very powerful. Ling poses the question: "In the future of the 'million
channel EPG', where consumers want video, text or sound from once
source, where are you going to go? You're going to go to the trusted
search engine." If Ling is right, maybe YouTube was worth the price.