Google-YouTube Merger Sends ‘Wake-Up Call’ To Yahoo, MSN

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OCT. 12: Google’s purchase of YouTube will catapult the most-used search engine into the top spot in Internet video and position the company to dominate the fastest-growing part of the online advertising market.

Internet video advertising will generate $1.1 billion in US revenue in 2008, up from $385 million this year, according to market researcher EMarketer. Google, which trailed in video, will have a site that is increasing its library of available video clips by 65,000 a day.

“This is a very, very important wake-up call to the other traditional Internet players,” said Mark Kingdon, CEO of Organic, San Francisco-based Internet ad agency owned by Omnicom Group. “YouTube is a huge prize because of the traffic it brings and the engaged audience.”

The $1.65 billion purchase gives California-based Google tools to take a bigger share of advertising budgets by selling video spots, where Yahoo! and Microsoft’s MSN already compete. Video will be the fastest-growing form of Internet advertising over the next three years, reaching 4.7% of the total by 2008, New York-based EMarketer said.

“The way that we’ve been approaching the ad model is to look for new, creative ways to engage users with brands,” YouTube CEO Chad Hurley said yesterday in an interview. “By us working with Google, it’s going to give us a lot of options.”

Shares of Google have risen 2.8% this year. Microsoft shares have risen 5.3% this year.

Google and YouTube will look to build on initiatives like YouTube Underground, a music contest sponsored by Cingular Wireless LLC. YouTube is asking unsigned bands to upload clips and users will vote on the best acts.

In August, YouTube added “brand channels” that companies can customise. Hotel heiress Paris Hilton was first to use the feature to promote her album.

Yahoo, the most-visited US website, sells video ads on sites including Yahoo Music. The company started accepting clips from its users in May. Analysts including Jeetil Patel of Deutsche Bank in San Francisco said Yahoo missed an opportunity by not buying YouTube and said that Google may eat into Yahoo’s sales of graphical banner ads by attracting advertisers to video. Yahoo declined to comment.

—Bloomberg