The real reason that Google bought YouTube?
The $1.65 billion purchase of the video-sharing site could actually be a boon for traditional TV ads.
When Google spent $1.65 billion for 19-month-old online video phenomenon YouTube, it was portrayed as a sign of the triumph of online video. And in important ways it is. But the voluminous coverage missed something central. Google's interest in the video-sharing site, ironically, also has a lot to do with its belief in the staying power of conventional broadcast television and cable.
It's important in watching Google (Charts) never to forget that it makes just about all its money from advertising. The fact that its role in advertising keeps growing is what, in turn, keeps its stock in the stratosphere, thus giving it the $128 billion market capitalization which enabled it to purchase YouTube with stock.
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Many writers recently pointed to the obvious opportunity for a Google-owned YouTube to profit from placing video ads next to the 100 million video streams that YouTube claims users view there each month. That is surely one reason Google can justify paying so much money, but a closely-related reason may be even more important.
YouTube will stay independent, really!
Google has for about a year-and-a-half been talking about its ambition, considered quirky or worse by some, to extend its auction-driven ad sales model beyond the net into what we think of as "old media." It has said it wants to get into the business of placing ads in print, radio and television.
Indeed, while last week's YouTube purchase was Google's largest, the second largest was January's $102 million acquisition of dMarc Broadcasting Services, a company with a successful automated system for ...