Google's YouTube Gambit

To make a long story short, for Google to be the primary search destination for video, it had to buy YouTube. How much is being the one-stop shop for search worth to Google?

If by buying YouTube, Google became the owner of most video searches on the web, did Yahoo! (YHOO Quote) and Microsoft (MSFT Quote) (who are trying to compete with Google in search) make a mistake by not buying YouTube? Time will tell.

Let me leave you with one more interesting thought: Google can easily monetize entertainment-oriented content that usually fetches lower price ads.

Since more people search for products and services on Google than any other place on this planet, Google owns the largest repository of so-called purchase-intent profiles in the world. Google could place an anonymous cookies on its visitors when they search and later deliver them relevant video ads on YouTube. For example, a person that searched for "car insurance" on Google could be shown a Geico TV ad the next time he visits YouTube, regardless of what he actually watches on YouTube.

This form of advertising is called behavioral targeting, and companies like mine and Advertising.com (acquired by Time Warner (TWX Quote) for $435 million in 2004) are deploying it in the marketplace. Google will leverage its valuable database of searches to convert YouTube's low-value ad space into targeted high-value video ad inventory.

So at the end of the day, the price Google paid might be justified not only strategically but monetarily.