In October 2007 the online video marketplace was in a state of explosive growth and change. Only a third of the U.S. population reported watching Internet video, but this percentage was expected to dramatically grow[i]. Most consumers were still unwilling to pay for content beyond full-length movies and TV shows[ii]. Experimentation with ad-supported business models was rising and expected to drive broader consumption of Internet video in the coming years. Ad revenues were for the time being still very low, however, many competitors were eager to stake a claim on the market.[iii]
It was still unclear which business models would ultimately prove viable. Google had made a bet that YouTube and Google Video would be a winning combination. While Google had an enviable track record, it had not scored many major successes comparable to its search engine in spite of its massive investment in new product development. Below I underlined some major characteristics of online video advertising market and challenges that YouTube is facing at the moment.
Online video market is characterized by high network effect, both direct and indirect. It means that increasing number of people watching videos online attract more people; growing number of people uploading their content attract other people to engage and upload videos. Additionally, more viewers attract more UGC (User Generated Content) creators. On the other hand, more users will attract more advertisers willing to put their ads on the platform. Though, it must be noted that network effect may cause negative consequences for the business, because increasing number of advertisers could drive away viewers and decreasing number of viewers could result in plummeting number of up-loaders.[iv] That why it is very important for YouTube/Google to find the right balance of the number of online video ads presented to the users in order to sustain the positive network effect.
First mover advantage
During the summer of 2006, YouTube was ranked the fifth most popular Web site by Web traffic–ranking service Alexa.com, with a growth rate far outpacing other popular new sites such as MySpace. It quickly became preeminent in the online video market. YouTube hosted more than 60 percent of all videos watched online and held 29 percent of the U.S. multimedia entertainment market. Users watched 100 million clips daily and uploaded more than 2,700 new videos every hour.
Although YouTube is unquestioned leader on the online video market it must be noted that any, even late imitation of the platform can negatively impact first movers. The company benefits from the first mover advantages, e.g. created high buyer awareness and loyalty that resulted in very high switching costs as entry barriers to the potential imitators and reputational advantages over its competitors[v] The emergence of competition in the video-sharing market continued to be rapid and Web trends were increasingly volatile.
Competitive aggressiveness
Google/YouTube should take into consideration that leaders are more likely to experience market share erosion or dethronement when (relative to industry challengers) they are less competitively aggressive, carry out simpler repertoirs of actions and/or carry out competitive actions more slowly.[vi] Having that in mind, it would be recommended to sustain competitive aggressiveness. According to Ferrier, Smith and Grimm (1999) leaders that carry out more competitive actions, i.e. the total number of new competitive moves the firm carried out in given year, than challengers will have a lower rate of market share gap erosion and a lower rate of dethronement. The repertoires of actions must be innovative and shouldn’t be easily imitated.
Crowdsourcing and Social market
A 2007 survey by McKinsey found that content creators’ desire for fame was their primary motivation for uploading videos.[vii] Other motivations cited were the desire to help others and to have fun. In terms of profiting from their videos, some users were open to the idea of compensation sharing, but that was not a primary driver.
Users of YouTube are contributors; they contribute and get attention and public recognition as a reward.[viii] As a result the productivity of the contributors depends on the number of views and/or downloads (the attention). The more views contributors received in one period, the more videos they uploaded during the following period. On the other hand lack of attention may lead to decrease in the number of the uploads.[ix]
In my opinion, the idea of monetary compensation, as suggested by the study of McKinsey, should not be followed by YouTube. According to Vohs, Mead and Goode (2008) the concept of money changes personal and interpersonal behavior.[x] People can start behaving like under monetary market rules, i.e. the individuals’ level of effort is influenced by the amount of compensation. Monetary markets are highly sensitive to the magnitude of compensation, whereas social markets are not. Under social market conditions, the effort is shaped by altruism and the amount of compensation is irrelevant.[xi]
Online video advertisement platform
In October 2007 Google introduced a program to include advertising within YouTube videos. The program encouraged Web site developers and blog authors to embed a YouTube video player in their sites. This player would offer videos customized to a site’s content. It would also contain two types of advertisements: skins and overlays. Skins surrounded the player and displayed an ad above the video, while overlays were semi-transparent messages running over the bottom section of the video. Revenues from the advertisements would be shared between the Web site, the creator, and Google[xii].
It was very important to be careful in placing the ads so they would not disrupt the user experience. Ads could show up only after a video had played for fifteen seconds. They also overlaid only the bottom 20 percent of the video with 80 percent transparency. Ads were initially priced at $20 CPM (cost per thousand views). Demographic targeting for videos was accomplished by differentiating among four viewer characteristics: location, demographics, time, and genre. [xiii]
To monetize YouTube platform Google must link customers from different sides of its customer networks, users and advertisers. In order to sustain positive network effect Google should pay enormous attention to user sensitivity to the quality[xiv]. There were at least two major concerns about the initiative described above. One problem was that web sites did not have control over which videos would be shown. At the time of its announcement, only one hundred providers (including no major players) had agreed to have ads on their videos.[xv] Another concern with the advertisements was their intrusiveness to the viewer experience. Earlier experiments with “preroll” advertisements had been lucrative but disliked by consumers. Industry analysts anticipated that the new ad formats would be less intrusive, but it was too early to tell how consumers would respond[xvi].
Combinative capabilities
In January 2007 Google announced plans to transform Google Video into a video search engine and began to index YouTube videos and add personalized recommendations on its homepage. By June 2007 Google Video had added other video-hosting sites to its index and became a true search engine for video. The index included videos from sites such as Metacafe, iFilm, Grouper, Yahoo! Video, and MySpace, but YouTube dominated the search results.[xvii]
Google/YouTube in order to sustain its competitive advantage over the competitors should concentrate on its unique competences based on routines, skills, and complementary assets that are difficult to imitate. The ease of imitation determines the sustainability of competitive advantage. General rule is that the more tacit the firm’s productive knowledge is, the harder it is to replicate by the firm itself or its competitors. Intellectual property rights (patents, trade secrets, trademarks) impede imitation of certain capabilities.[xviii]
Although, the capabilities of online video platform has been gained with the YouTube acquisition in October 2006, Google must develop strategic capabilities in-house, by leveraging the learning from search advertisement, synthesizing and applying current and acquired knowledge.[xix]
As recently as 2009, YouTube lost nearly half a billion dollars. But now, its revenue has grown dramatically. Many Google employees increasingly see it as an attractive place to work, offering a less-bureaucratic environment that lets them run with their ideas. The shift comes as the online video site is increasingly focused on revenue. Analysts disagree on whether YouTube is profitable, and Google won't disclose YouTube's finances except to say that revenue more than doubled in 2010. It’s really exciting to see that Kamangar, CEO of YouTube who designed Google's tremendously profitable AdWords advertising program, is pursuing an ambitious agenda to reorganize YouTube's videos around topics - much like niche TV channels - rather than individual videos.[xx]
No comments:
Post a Comment