What's The Future Of Google's Ad Space?

Talk of Google's advertising machine raises natural questions about the company's future: 1) Can it monetize the huge numbers of eyeballs that watch YouTube? 2) Will it find a way to make its search ads more powerful? 3) Will it create a whole new killer advertising category?

1) It depends who you ask.

Wall Street analysts have divergent views on the issue of YouTube, clashing over whether it's ice hot or burning out.

Jeffries analyst Yousseff Squali estimates that YouTube will account for roughly 3 percent of Google's net revenue this year, or $500 million. Squali's source of optimism is YouTube's video search ads. Were you to look for this opinion, you'd find it buried in the Wall Street Journal, citing "only $500 million". But that's about twice as much as some analysts expected from the company.

Meanwhile a New York Timesarticle about the value of Twitter says Google is struggling to adequately monetize YouTube. The piece cites Sanford Bernstein analysts saying Google would do best to steer clear of Twitter, as it is still struggling to make money from YouTube, a previous takeover target.

2) Absolutely yes.

Google totally dominates search. Can it make more money in this space? Apparently Google is making its search ads more "Interesting," that's code for "relevant to consumers" and "more powerful." Last week Google launched a new strategy -- it's saving a cookie file to your computer to track your online activity. Then Google will utilize the sites you visit (sports, pets, etc) to help target ads to your interests.

The company insists it won't be "big brother", saying the tracking is tied only to a computer and it's not monitoring your name or any personal information. And perhaps most interesting? Google is allowing individuals to *edit* the company's information about their preferences. You can tell Google you want more ads for pet food or trips, or you can opt out of the program entirely.

Makes a huge amount of sense, right? I'd rather be fed ads that I've picked out, and I love the concept of being able to tailor my ad profile. (More travel ads, please!)

3) Hard to Tell; Here's what it's not.

What's Google's next golden egg? Its android smartphone? Its new Chrome software? I don't have a crystal ball, but one analyst (maybe he has one) says it definitely isn't social ads. Google's monetization deal with MySpace expires in just over a year, putting that relationship in the spotlight.

Pali Research's Rich Greenfield says, "Google simply does not care about social search. In turn, it is harder to conceive Google paying anywhere near their prior commitments to MySpace, especially as the inherent functionality of social networks is diminishing (status updates/news feeds, internal IM, internal e-mail) is diminishing the importance of search." Greenfield goes on to say that Google is unlikely to renew its contract with MySpace, which he expects will prompt Yahoo, AOL and MSN to bid for a new deal with MySpace. But Greenfield predicts that these companies will likely have learned from Google's overpayment, and won't pay as much, which will prompt MySpace layoffs and changes.


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