Google-Yahoo Deal Facing Regulators As YouTube Revenue Issues Persist

The troubling trend for Google (GOOG) when it comes to advertising, a trend that first appeared at the end of the Q1, ’08 are well-known. If we recall, only in March, Google’s paid clicks, according to ComScore numbers – grew only 2.7% on a y/y basis. Putting first-quarter paid click growth at minimal levels of 1.8% compared from the 25% rate in the previous quarter.

Even though after an alarming first quarter Google managed to reignite growth in the all-important paid click category, when a company’s revenue engine is almost entirely fueled by Internet searches and ads clicks, as revenues start shrinking, then – from a business perspective, there is a legitimate cause for concern.

An extensive report published on Wednesday by The Wall Street Journal also added to these concerns. According to the report, challenges facing Google are not strictly confined in the advertising part of the business. Those include its YouTube division as well.

[Excerpts: Via: Wall Street Journal]

Although users of the popular video-sharing site view clips more than one billion times on most days, the site hasn’t been as popular with big corporate advertisers.

World-wide revenue from YouTube ads has fallen short of Google’s expectations this year, and is likely to total about $200 million for the full year, according to two people familiar with the matter.

General Motors Corp. has been a regular buyer of Google search ads. More than a year ago, it experimented with advertising its Cadillac brand on YouTube. Since then, it hasn’t significantly boosted its YouTube ad buying, says Mike Devereux, GM’s executive director of digital marketing and customer relationship management.

It’s rather obvious once reading the article in its entirety, that gaining ad revenues from YouTube is proving to be quite a challenge for Google Inc.

Marc Cuban in his Blog also addresses the YouTube issue offering his analysis: “It appears”, says Cuban “YouTube can only monetize about 4pct of its content. Which leads to the question of “how can Youtube monetize the other 96pct of its content ?” : “The answer, believe it or not” – continues Cuban “lives within Youtube and begins with another question: “Can Youtube generate enough traffic per video to cover the cost of reviewing content for copyright violations ?”

Deviating from the YouTube subject while still remaining within the “Google” theme – Richard Bennett, San Francisco Chronicle – also wrote a great piece Wednesday about Google, where he addresses some critical points regarding US anti-trust regulatory issues concerning the Google-Yahoo (YHOO) 10-year deal.

[Excerpts: Via: San Francisco Chronicle]

Bennett, starts by saying that the “regulators should not be fooled” and that “they should apply traditional anti-monopoly standards, blocking the Google-Yahoo deal”. He than continues..

..the deal, as currently structured, substantially alters the Internet economy. Advertising is the prime revenue stream for social networks, news sites and Internet aggregators of all kinds, and it’s closely linked to search. Instead of a search market where three players compete vigorously for eyeballs, this deal would create a status quo where the top dog enjoys an 85 percent market share and the ability to set prices for search ads with no fear of being undercut by its much weaker sole competitor. This should set alarms clanging wherever antitrust and personal privacy concerns are held dear, but it hasn’t.

These complexes exploit a flaw in Internet architecture that enables them to seize more than their fair share of network bandwidth, effectively giving their owner a fast lane. A richly funded Web site, which delivers data faster than its competitors to the front porches of the Internet service providers, wants it delivered the rest of the way on an equal basis. This system, which Google calls broadband neutrality, actually preserves a more fundamental inequality.

Apart from all the comments and hypothesis, one fact must be recognized: the search advertising giant innovated and catapulted its way to the top. The only way for Google to be seriously challenged, is “strictly” through superior innovation. Until then, its market dominance will persist.

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About Ron Haruni 1070 Articles
Ron Haruni is the Co-Founder & Editor in Chief of Wall Street Pit.

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