Bachiller En Economía

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KEL403

KAREL COOL, MATT SEITZ, AND JASON MESTRITS

YouTube, Google, and the Rise of Internet
Video

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In November 2007 Google celebrated the one-year anniversary of its acquisition of YouTube.
YouTube and Google Video had accomplished a major feat: together they accounted for four
times as many unique visitors as their closest competitor in the Internet video marketspace.
YouTube had become synonymous with online video sharing thanks to its brand strength and
loyal user base. In fact, YouTube’s brand had skyrocketed to third place in an online brand
ranking, with survey respondents rating only Google and Apple as more influential.1

tC

Although Google and YouTube had much to celebrate, they also had many issues still to face.
Google had spent $1.65billion in stock to acquire the young video-sharing Web site only a year
and a half after YouTube was founded. The emergence of competition in the video-sharing
market continued to be rapid and Web trends were increasingly volatile. Some analysts also
questioned viewers’ long-term attachment to YouTube. According to one blogger, “It’s hip to be
social these days but it’s not at all clear thatpeople are so ‘emotional’ about or attached to home
videos and amateur content that significant network externalities have been created.”2 In fact, one
analyst argued that “YouTube is [both] a time bomb and a gold mine waiting to happen.”3 Neither
Google nor YouTube had built a proven business model for Internet video. How would Google
develop YouTube into a profitable business withoutcompromising its leadership position in the
Internet video category? What was to become of Google’s own video site? Would the attributes
that had fueled Google’s meteoric rise in Internet search apply equally to Internet video?

No

The Internet Video Industry

Do

On the heels of Google’s acquisition of YouTube, Internet video had emerged as one of the
hottest consumer technologies. While thedemise of traditional broadcast television was in no way
imminent, more and more viewers were watching video on the Internet. In a 2006 survey by
research firm IDC, 33 percent of respondents reported watching Internet video. Of those, 17
percent said they watched videos daily while 42 percent watched them weekly. Although some
consumers were watching full TV shows online, the most populartypes of Internet video

1

Brandchannel.com Reader’s Choice Awards 2006, January 2007.
Starling Hunter, “Google, YouTube, and the Questions of Value,” August 2006, http://www.thebusinessofamericaisbusiness.biz/
2006/10/google_youtube_and_the_questio.html.
3
Greg Sandoval, “YouTube Could Be a Steal at $1 Billion,” CNet News, August 2006.
2

©2009 by the Kellogg School of Management,Northwestern University. This case was prepared by Professor Karel Cool, Matt
Seitz ’09, Jason Mestrits ’08, Sona Bajaria ’08, and Uday Yadati ’08. Cases are developed solely as the basis for class discussion.
Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. To
order copies or request permission to reproduce materials,call 800-545-7685 (or 617-783-7600 outside the United States or Canada)
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permission of the Kellogg School of Management.

This document isauthorized for use only by Diaz Ismodes until June 2012. Copying or posting is an infringement of
copyright. Permissions@hbsp.harvard.edu or 617.783.7860.

KEL403

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YOUTUBE, GOOGLE, AND INTERNET VIDEO

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