gabrielleqlnm: Making Money Off Youtube

Google’s recent push into tablets and mobile, along with offering new search services such as Google Instant, are pushing up the company’s capital expenditures, which are slotted to grow almost 184 percent in 2010 compared to last year. Next year, that amount is going to go even higher. This spending is a good thing, because it allows Google to leverage its inherent advantage: infrastructure.

A few years ago, I noted in a post that infrastructure was Google’s key competitive advantage. It’s what allowed the company to innovate and outpace its rivals. It allowed the company to give us results faster than our broadband connections could offer, making us more subservient to its search in the process. In the end, we all forgot the directories and instead focused on the search-box as the start of our Internet journey. Today, Google is a gigantic, $7.3-billion-in-quarterly-sales business.

One thing Google knows: It needs to keep spending money on this infrastructure in order to stay competitive and current. The company recently introduced Google Instant, a new feature that allows you to get results even as you’re still typing the search term. It’s a service akin to the days when an Intel chip got multimedia extensions.

In many ways, Google Instant demonstrates the evolution of a product in order to keep up with times; today’s faster broadband means that the search results need to come up faster than one could type. More importantly, Google Instant is a search product optimized for a brave new world where the user interface is touch rather than keyboards, and devices aren’t your classic computer, but instead mobile and tablet-like.

One of the reasons Google was able to launch Google Instant is because it can afford to spend a lot of money on its infrastructure. During the third quarter of 2010, the company spent nearly $757 million, the highest amount since the first quarter of 2008, according to investment bank J.P. Morgan. (In comparison, Google spent a total of $810 million on capital expenditures in all of 2009.) In a conference call with Wall Street yesterday, Google VP Jonathan Rosenberg told the analyst community:

From a revenue standpoint, its impact has been very minimal; and from a resource standpoint, it’s actually pretty expensive. So why did we do it? Well, we believe from a user standpoint, Instant is outstanding and the data that we are seeing actually bears this out.

Google’s spending on capital expenditures (mostly on data centers) had been on a decline. That is about to change. According to J.P. Morgan, the company is going to spend $2.3 billion on capital expenses in 2010 versus $810 million last year. For next year, the investment bank is forecasting $3.2 billion in capital spending.

Some Wall Street analysts are going to view this increased spending and wring their hands. They’re idiots and short-term thinkers. I see the growth in capital expenses as a sign of health, and that things are going well for Google –actually, really well.

Let me explain; until recently, Google had to focus on a small subset of actions to satisfy its end customers – all of us – and thus make money off of advertising. Throw in YouTube videos and Gmail, if you want, but browser-based search and search-based advertising were its bread and butter.

Google is said to be the single biggest source of traffic on many of the world’s networks and that’s with only a handful of offerings. Now imagine how big Google will be as a percentage of the source of Internet traffic once we start taking their new initiatives into account. That also explains why they need to build their own networks and lay their own fiber pipes.

Now the number of consumer interactions has grown multifold. Google’s Android mobile operating system is an Internet-enabled OS peppered with Google services that are used more frequently because we have access to them in our pockets. This overall growth in data center capabilities is only going to go up as the company becomes more successful with its Android push. By spending on data centers and networks, what Google is ensuring is that Google Android will always have a great user experience. Remember, in a world dominated by cloud clients, nothing matters more than instant access to various Internet services.

Related content from GigaOM Pro (subscription req’d) about Google, and its Mobile Efforts:

Why Google Should Fear the Social Web

Report: Google’s Voice Possibilities

How Mobile Cloud Computing Will Change Tech

Google describes its new Google TV as a "platform that combines your current TV programming and the open Web into a single, seamless entertainment experience." But broadcasters don't necessarily want to see that delicious combination of peanut butter and chocolate Web and TV—and they've now taken to blocking Google TV access.

Think of this as a continuation of the "Hulu Wars." Hulu has always made it difficult to access its content on TV screens even as applications like PlayOn tried to blend the two. The reason isn't hard to find: the TV networks that created and control Hulu aren't keen on cannibalizing their TV revenues by making it too easy to dial up an on-demand, ad-limited experience. If you want to watch Hulu, you're supposed to watch it on the slightly-less-comfortable screen of your computer.

With Google entering the TV platform game, that concern still exists (Hulu now charges $9.99 a month to access its service on other devices, like a TV screen or a smartphone, although it's rumored that will drop to $4.99), but it's joined by another. Google isn't a TV company or a content company; it's essentially a giant advertising company. As Google TV takes off, sucking in every scrap of video on the Web and on TV, the company is poised to become a content aggregator that makes money from advertising on the Google TV service. The networks don't want to continue the model where the aggregator makes cash by the boatload while the content it aggregates sometimes struggles to make any money.

The networks also don't want services like Google TV to destroy the cable subscription model too quickly by making "over-the-top" Internet video too appealing, since big chunks of their cash come from cable's retransmission fees.

So the new Wall Street Journal report about Google TV being blocked comes as no surprise. ABC, CBS, and NBC have all restricted access to the TV episodes on their own websites, though Google is taking the route it usually takes: it tries to strike a monetary deal when content owners put up resistance to unpaid aggregation (this has happened with Google Books, with the Associated Press, etc). Reuters reports that Google is negotiating to free up access to this content, something that will be necessary if Google TV will be used to access more than just broadcast channels and YouTube content.

The DC advocacy group Public Knowledge argues that broadcasters have a public duty to allow access to this material. "It is truly disappointing that broadcasters would leverage their programming to deny access to viewers who watch the shows over another medium—on cable or online," said president Gigi Sohn. "When a broadcaster exercises its market power in pursuit of maintaining a business model while stifling competition by blocking Hulu, Fox.com (or Google TV), the broadcaster violates that public trust and harms consumers... If online video is to emerge as an independent medium, it must be free from the power that broadcasters bring to bear."

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Monday, November 15, 2010

Making Money Off Youtube

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