YouTube would be a bad move for Google.
It is bad for shareholders since it makes Google less competitive on search since it provides a disincentive to make any advances in search technology. It also may create additional legal exposure for Google in terms of click-fraud lawsuits.
It is also bad for advertisers since it dilutes the value of Google’s ad distribution network. Advertisers are the life-blood of Google’s revenue model.
Hurting Search.Search is ultimately the utility that has made Google popular and that has made Google the default start for most people on the internet. Search is still extremely important to the internet and has a ton of value left in it as a function.
There are plenty of competitors ready and waiting to eat Google’s lunch in search.
The more content that is covered by Google’s ad distribution network, the less incentive Google has to fine tune its search technology.This is discussed in previous posts.This is especially the case for the untargeted, un-controlled content of YouTube.
Legal Exposure. The YouTube acquisition also creates another arena for link farms and click fraud. Only, in this case, it would be video click fraud and Google would own the content distribution network.
Google already has a challenge protecting its advertisers from click-fraud and the integrity of its search results from link farms and the such without owning the content or the content distribution network. This has provided a clear line in the sand.
By acquiring YouTube, Google may be opening up a whole new set of boundaries it will have to define in court as to where its liability/responsibilities stop and where it becomes the content producer’s fault.
Bad for Advertisers. It is the kind of untargeted content of YouTube which is a negative to brand advertising. (Unless Google plans on taking a more network Television type approach to having input with the content creators on YouTube -which is highly unlikely and would likely squash YouTube’s popularity). Brand advertisers crave targeted, well defined channels. By aggregating more untargeted content in its network, Google is creating a larger market place for bidding on big umbrella keywords, like deodorant, without adding additional value to the advertisers.
By increasing the demand without providing more value-ad, the short term result maybe higher prices for the keywords (and more revenue for Google). The longer-term results may be the defection of advertisers of all sizes.
Brand advertisers are often cited as a large avenue for future online revenue as big brand companies move a larger portion of their advertising budgets to online advertising.
Microsoft in the late ’90′s? In some ways, the talk of Google and YouTube is reminiscent of Microsoft’s foray into content in the mid to late 1990′s. In hindsight, Microsoft’s acquisitions and investments in those areas now look like a distraction. And while Microsoft was distracted, it’s growth slowed and the door opened to a whole new wave of competitors -including Google.