Kew Score: There’s More to Google’s Q3 than Champagne and Roses
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Written By Kew Kelly-Yuoh | October 20, 2006 | Share This
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Well it wouldn’t be fair if I just harped on Yahoo!, now would it? Looks like Google had another blow out quarter, champagne and roses for all, investors and analysts are ecstatic, what else is new? Well for one, Google’s tactical business model. When headlines trumpet Google’s company-owned sites drive revenues, Google’s competitors and especially its distribution partners (hello MySpace???) should really start paying attention.
I’m talking about the economics behind Google’s traffic distribution model. First, Google attracts advertising partners with a serious amount of upfront cash, but stipulates that partners have to “earn” that cash over a set amount of years (subject to various and sundry traffic and CTR thresholds, etc). In the meantime, Google develops a competing product and uses it to slowly (or quickly) siphon off the precious search/contextual traffic from its distribution partner. Finally, Google sends that traffic to its own properties. It’s tremendous growth, then, is a combination of strength of the overall paid search market plus a more than doubling of revenues per click (since Google no longer has to share the CPC with anyone) for each click it siphons off a partner to its own property. In fact, for each siphoned click, especially in its core search service, that incremental revenue probably falls straight to the bottom line. Beautiful business economics and execution — just ask Yahoo! or Lycos. More interestingly, check out Google in the Asian markets where their brand doesn’t get them that far.
Which brings me to YouTube and MySpace. Google likely bought YouTube because:
- Google couldn’t approach YouTube with its tactical business model outlined above –since even almighty Google can’t currently monetize video effectively, and
- Why not buy YouTube from a defensive perspective before Yahoo! does, and figure it out all later? (Besides it’s a stock deal and what’s the worst that can happen?)
I hope MySpace has the werewithal to start building out a PPC platform (or at least buying a Tier II/III PPC engine that’s managed to sidestep Yahoo!’s patents in this space), because the Google army will be spending the next 3 years building out and improving monetization of YouTube to siphon away their video traffic. Facial recognition, AI and other esoteric technologies (that no media company can employ) are all in the works from Google as they race to properly contextualize and index video. Next up — social media monetization, self-perpetuating growth, and of course, more champagne and roses.
Topics: Google |