• Himansu Varghese

YouTube's Potential Divorce: What If The Government Forces Google and YouTube to Split Up?

Alphabet is a mammoth tech conglomerate, stretching from familiar products like Google Search, Gmail, and Android, to whackier ones like Google Home and Waymo. However, a bulk of their revenue comes from a single source: Advertising.

Google controls more than 90% of the paid ads business on the internet. This makes them a powerful force in this space, capable of impacting the life and choices of over a billion people across the planet. Of course, this advantage was not handed to them on a platter by any means. Starting off as a small-time search program on the World Wide Web called PageRank, Google built itself into an advertising behemoth through a series of smart investments, and timely acquisitions. It acquired DoubleClick in 2007 and AdMob in 2009 both of which went onto become the foundation of its AdSense and Marketing Programs. In 2005, Google also famously acquired YouTube, which is now the world’s largest video sharing platform. But more importantly, YouTube has become one of the major contributors of revenue for Google, growing from 7.3% of the total revenues of Google in 2017 to 9.4% of the total in 2019. Although YouTube recently introduced the Premium option which is ad-free, the majority of its revenue still comes from advertisements. So clearly the strategy is working for them.

Google's ad business is huge. But how big is too big? Countries such as the US and nations of the EU have very robust antitrust laws that aim to protect the small players against the might of massive market leaders like Google. These laws exist in order to boost competition and make sure that major players don’t steamroll the others by unfair means like undercutting on prices, using unfair trade practices, and generally leveraging their status as a large enough player to exploit the free market. The efficacy of these laws is debatable, but that’s another article altogether. And antitrust advocates salivate in situations like google, where one player effectively controls the entire market. Recently the CEOs of all the big tech companies were called on by the US Senate to appear before the antitrust committee, so there is some movement that is happening in this sphere.

So, should a situation arise where Alphabet, the parent company, is forced to divest itself and split into pieces, the likely candidate for a spinoff is YouTube. And if Youtube begins to operate as a separate entity, the internet ad market becomes a really interesting space to watch, almost instantly.

For starters, both these companies, Google and YouTube will be without each other's help, so they’ll need to plug those gaps.

For YouTube, they no longer will have the advantage of the massive data input that google search, and other services like Google Home, Android, and Gmail bring in. A constant supply of real-time data is critical in a business, like targeted ad services, where relevancy is crucial to the end-user. On the flip side, Google now loses the part of their firm that gets the most eyeball attention, which means they now have limited space to actually show their ads. Of course, they still have very good situational ad presence, like on Google Search, or on Google Assistant, but those are limited to suggestions and weblinks. Those can never compare with the customized, visual ads that they are currently able to put on YouTube videos. Potential advertisers may be prepared to pay more for a 10-30 second clip of their Brand playing before a popular video than a few hundred search results directing traffic to their website.

So how would they go about fixing these issues?

Google’s problem seems to have a straightforward answer. They may build a video streaming service and direct traffic to it. This has been tried before in the form of Google Videos, but they merged it with YouTube post its acquisition. A return to this model seems like the easiest, rational step. Not to mention, distribution is almost never a problem for a company this size. It is the creator network that Google might have to work hard to build.

YouTube however has a much larger task at hand, which is to compensate for the lack of search input. There is a slim, yet a real possibility that they will add a web search feature onto YouTube itself, as they currently do, where users see purchase ads for the product they see in the video. This would still require users to use YouTube as opposed to Google, to do actual web searches. The other option would be an acquisition of another search engine, DuckDuckGo perhaps? Again, this would require a significant level of search traffic to come via this new search engine. Another potential way for YouTube to generate more revenue would be to have a revenue sharing program with its creators. For instance, game equipment manufacturers might be interested in sponsoring certain gaming youtube channels, but small-time, niche YouTubers might not have the resources to get big endorsement deals. If YouTube can act as an agent for these small-time creators, they can then structure a revenue-sharing model that would help both YouTube as well as the creators.

In addition to this, Facebook’s presence also cannot be understated, as they have been quietly building and improving their search and streaming features over the past few years. Recently, Microsoft folded its Mixer game streaming service, partnered with Facebook, and ported its content to Facebook Gaming. It would be interesting to see whether Facebook might be the one to throw a wrench into Google's plans.

In any case, it would be a refreshing change to see a shakeup and more competition in the internet ad market. Nobody knows what the future holds!

109 views0 comments