‘GOOGLE AND THE YOUTUBE ACQUISITION’

An exercise in developing the understanding of basic concepts of Marketing from the first chapter of the text “Marketing’ by Grewal and Levy for the course Marketing 301.002 at the University of Baltimore.

Mark AndersonStudent ID: ID26YC05February, 3, 2011

1

1. According to the break down in Exhibit 1.5, which of the four orientations best describes YouTube?

The four orientations described in exhibit 1.5, in the text ‘Marketing 2nd edition’ by Grewal and Levy, are Production, Sales, Marketing and Value-based Marketing. The best orientation that describes YouTube is that of Value-based Marketing. Value-based Marketing is defined as ‘the attempt to discover and satisfy their customers’ needs and wants.’1

There are two concepts that are associated with Value-based Marketing and they are the concepts of Value and Value co-creation. Value is ‘the relationship of benefits to cost, or what you get for what you give.’2 And Value co-creation ‘is to allow (customers) the opportunity to act as collaborators in creating the product or service.’3 Both of these concepts are found in the YouTube model.

YouTube has a unique position where as it has two types of customers, those who upload videos and watch them, a definite form of value co-creation, and advertisers who look to buy positions on the site to market their products and services to those who watch the videos. Advertisers look for ‘value’ because they are directly looking at the ‘relationship of benefits to cost’ due to their monetary exchange for advertising space on YouTube’s website.

2. What was Google hoping to achieve by acquiring YouTube?

Basically Google is hoping to achieve more profits from the acquisition of YouTube. However the way Google hopes to achieve these profits may be considered novel as well as revolutionary. One of the easiest ways to describe Google’s mind set of acquiring YouTube is relating it to the cliché ‘taking lemons and making lemonade.’

YouTube has had problems with copy right issues with the content owners as expressed in the case, ‘Google and the YouTube Acquisition.’4 Most recently and possibly the most public company, ‘Viacom, even sued YouTube for $ 1 billion in early 2007.’5 So why would Google want to buy this lemon? Because Google hopes to take the copyright issues, the lemon, and turn it into lemonade by ‘making use of a fingerprinting system Google has develop. Copyright owners could tag and track their content on YouTube. The content identification system allows copyright owners to see where and how often their material is viewed.’6

This is valuable information and information is one of the keys to success for any business. Giving control of what material the copyright holders want to allow or disallow stops the unwanted lawsuits. This in turn would relieve YouTube of the financial problems of lawsuits, allow advertisers to feel more secure in advertising on YouTube and allow YouTube to share some of its profits with the copyright holders.7

3. Which features create the most value for both users and advertisers?

The value created for the user is basically entertainment. This entertainment consists of users being able to view a wide variety of content for free. As well it gives the user the ability to upload their videos, giving them an inexpensive way to display their material to a vast audience. This is extremely beneficial to people in the entertainment world, such as musicians and actors, because it is an inexpensive way of reaching a huge audience. More people seem to be on the move and looking for something other than

2

the typical TV entertainment media. YouTube has the platform to give the consumer what they are looking for.

The value created for the advertisers is tremendous. “What YouTube gives advertisers is massive reach and massive audience, “said Barry Salzman, managing director of media and platforms for the Americas at Google.8 Massive may be an understatement since YouTube is the fourth largest website on the internet, has over 455 million users, has more than 2 billion videos viewed per day and is the 2nd largest search engine only to Google itself.9

4. In terms of creating value for its users and content providers, how does YouTube compare with traditional channels, such as television, movies, and DVDs? Explain your answer in terms of benefits, reduced costs, or a combination of these factors.

YouTube creates increditable value for its users and content providers in a more non-traditional way than that of television, movies and DVDs. The first benefit is that of convenience. YouTube can be accessed 24 hours a day 7 days a week. All of YouTube’s material can be accessed at any time. Traditional TV can usually be accessed, given you have cable and a TV, 24 hours a day but not every program may be accessed when you want to view it.

Secondly, YouTube offers mobility to its users and providers. Users and content providers can access, search, view and upload videos via laptops, desktops, iPods, and most smart phones. All you need is an internet connection and you are in. With traditional media types such as TV, movies and DVDs, both users and content providers are limited by hardware, selection and transportation.

TV’s are not that mobile, as of yet, and those that are usually only receive local programing, which in turn constricts the selection available dramatically for the user. Content providers do not all have traditional hardware such as video cameras and editing software to record movies and then distribute their content to massive audiences. However most content providers do have cameras on their phones, which in turn allows them to record, up-load, edit and reach a huge audience on the internet. Once uploaded, these videos can be accessed by hundreds of millions of people.

Try getting a video out to just 10,000 people the traditional way! Unless you have deep pockets and an American Express Black card it’s just not going to happen.

5. Visit the YouTube Web site and try some of its features. How can advertisers maximize the potential YouTube offers?

After viewing YouTube and some of its features advertisers may wonder how to maximize the potential YouTube offers. Unfortunately, I was not sure how to do this; however after some research I found some information on how to target an audience on YouTube. Being a novice in this area, I will say that these ideas have not been tested by me personally and I fully may not understand some of these concepts, however they do seem to be logical and informative.

‘Create a Home on YouTube’ and ‘Build a Loyal Audience’ are two main concepts that I found in my research. Creating a Home is achieved by creating what is called a channel. Channels create a destination for users/viewers on YouTube. By creating a destination the owners of these channels can drive traffic to their specific areas and attract subscribers. By creating a channel, the advertiser can customize it so that it represents their intended goals and their individual companies. This seems to be

3

very similar to having your on cable channel where the advertiser/ channel owner is in control of what programs/videos are incorporated and what advertisements are displayed. ‘Build a Loyal Audience’ involves updating the content on your channel to keep the subscribers that you have and to increase subscriptions to your channel.10

6. What risks do advertisers face if they choose to use YouTube?

The biggest risk that advertisers face if they choose YouTube is having their ad mismatched with the video that the user may be watching. An example of this could be a video showing cars sliding on ice and crashing into each other and then a banner as pops up for Bridgestone tires.11 Obviously, this is not something Bridgestone wants their product to be associated with. Many companies want to portray a certain image with their product, their company or both. YouTube may not be able to provide the security to insure that a company’s image will be protected at all times.

YouTube is about quantity. It’s about reaching as many people as possible and as diverse as possible. Target markets do not seem as important to YouTube as it does to some advertisers. YouTube is about freedom for its viewers and this freedom if controlled by the advertisers would deviate from the original model YouTube has tried to establish from the beginning.

4

NOTES

1. Grewal and Levy. “Marketing.” New York: McGraw-Hill, 2011. Print

2. Grewal and Levy. “Marketing.” New York: McGraw-Hill, 2011. Print

3. Grewal and Levy. “Marketing.” New York: McGraw-Hill, 2011. Print

4. This case was written by Colin Fox in conjunction with the textbook authors (Dhruv Grewal and Michael Levy) as the basis of class discussion rather than to illistrate either effective or ineffective marketing practice.

5. Salisbury, Bart. “Re: Google Hoping to Profit from YouTube’s Copyright Issues.” Maximum PC. Web. 2 Nov. 2009. http://www.maximumpc.com/article/news/google_hoping_profit_youtubes_copyright_issues

6 Salisbury, Bart. “Re: Google Hoping to Profit from YouTube’s Copyright Issues.” Maximum PC. Web. 2 Nov. 2009 http://www.maximumpc.com/article/news/google_hoping_profit_youtubes_copyright_issues

7. Womack, Brian. “Re: Google’s YouTube Increases Display Advertisers 10-Fold.” Bloomberg. 3 May 2010. http://www.businessweek.com/news/2010-05-03/google-s-youtube-boosts-display-advertisers-10-fold-update1-.html

8. YouTube. “Re: What does YouTube offer to Advertisers?” YouTube. http://www.google.com/ads/youtube/

9. Sandoval, Greg. “Re: YouTube: Too rough for advertisers?” CNET News. 21 April 2006. http://news.cnet.com/YouTube-Too-rough-for-advertisers/2100-1024_3-6063536.html

10. YouTube. “Re: What does YouTube offer to Advertisers?” YouTube. http://www.google.com/ads/youtube/

11. Sandoval, Greg. “Re: YouTube: Too rough for advertisers?” CNET News. 21 April 2006. http://news.cnet.com/YouTube-Too-rough-for-advertisers/2100-1024_3-6063536.html