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The online video kingpin's marriage with Google should keep YouTube in front. But some rivals sense an opportunity to catch up.
By Paul R. La Monica, CNNMoney.com editor at large
November 14 2006: 9:15 AM EST
NEW YORK (CNNMoney.com) -- It's only been a little more than a month since Google shook up the online video world by announcing that it was buying YouTube for $1.65 billion.
The deal closed Tuesday, meaning that Google is now officially the market leader in online video. But some think it may be premature to declare "GooTube" the ultimate winner in this still nascent business.
Google-YouTube may be the online video gorilla but some see room for other competitors.
Online video explosion
YouTube isn't the only site benefitting from the popularity of online video.
Total unique visitors (in millions)
Site Aug. 06 Sept. 06 Oct. 06
YouTube 19.1 20.8 23.5
Yahoo Video 21.1 18.6 20.9
Google Video 11.9 13.2 14.6
MSN Video 15.4 17.1 13.9
MySpace Videos N/A 8.9 10.0
Heavy.com 7.6 6.9 7.8
Ebaumsworld.com 5.1 4.3 4.2
Metacafe 1.8 4.2 3.8
Break.com 2.5 3.5 2.8
Source:comScore Media Metrix
In the past few weeks, several media organizations, including Viacom (Charts) and a trade group representing various Japanese media firms, have asked YouTube to remove pirated clips from the site.
Google buys YouTube for $1.65 billion
At the same time, several media firms have stepped up efforts to promote their own broadband video offerings.
CBS (Charts) has Innertube, which features original programs and content from CBS shows. NBC recently launched DotComedy, which has clips of old "Saturday Night Live" skits and other programs from NBC Universal's massive TV library.
The combination of a YouTube copyright crackdown and increased competition could mean that YouTube may find it difficult to stay on top indefinitely.
To be sure, there does not appear to be any sort of YouTube backlash so far. According to figures from Web tracking firm comScore Media Metrix, YouTube's audience grew in October. The site had 23.5 million unique visitors last month, compared to 20.8 million in September and 19.1 million in August.
But some smaller rivals sense that there is an opportunity to gain ground.
Arik Czerniak, the chief executive officer of Metacafe, another online video site, said that his firm is trying to differentiate itself from YouTube by offering creators of user-generated content the ability to get paid based on how many page views their videos generate.
Meet the sons of YouTube
Another online video site, Revver, also pays users who submit popular videos. Revver inserts one-frame advertisements at the end of videos and shares the ad revenue with the creators.
"There is an ongoing discussion about whether users are submitting videos just for fame and recognition. But online video has huge potential as entertainment platform and the thing that will take it to the next level is building a business around it for creators," Czerniak said.
Metacafe has seen its audience grow in recent months, from 1.8 million visitors in August to 4.2 million in September. Traffic dipped to 3.7 million in October, though. Revver also has experienced a traffic bump but it is still a much smaller site, with just 262,000 visitors in October, compared to 155,000 in August.
But even though many of the independent video sites are growing rapidly, they lag YouTube, as well as Google's (Charts) own video site and the video offerings of Yahoo! (Charts), News Corp.'s (Charts) MySpace and Microsoft's (Charts) MSN, by a wide margin.
Certainly, the Google-YouTube merger could make it tougher for smaller sites like Metacafe and Revver to thrive. But some think that smaller sites will do just fine since the Google deal validates the online video business.
Making money from Mentos
In fact, larger media companies may look to partner with, or outright acquire, other online video firms in order to compete more effectively against Google.
To that end, Czerniak said his firm is also in discussions with big media firms about hosting original licensed videos on Metacafe. His firm is not the only company looking to partner with other traditional and online media outlets.
"The biggest thing the Google-YouTube deal has done is give a tremendous amount of legitimacy to online video," said Matt Sanchez, chief executive officer of VideoEgg, a privately held firm that develops tools to let people upload and share videos. "Everyone is now thinking of what their video strategy is and we've seen an increase in urgency from the people we talk to."
VideoEgg is trying to be more of a partner with larger firms as opposed to a destination site for user videos. In addition to tools, VideoEgg has also developed an online video ad platform that's used by social networking sites such as Bebo, Dogster and Tagged.
Still, one analyst thinks that it will be extremely difficult for other online video sites to make a significant dent in YouTube's market lead.
"YouTube has a distinct advantage from being a leader. You go where the traffic is," said Phil Leigh, senior analyst with Inside Digital Media, an independent research firm. "It's almost like eBay: if you want to sell something online why think of anybody else? Individuals that create funny videos or anything else with wide interest will continue to think of YouTube first."
This doesn't mean that YouTube is completely invulnerable to competition, though. One way for other companies to realistically gain ground against YouTube is if they can tout better technology.
"The ability of any other company to grab attention is dependent on having a distinct, clear-cut offering that's better than YouTube," said LeeAnn Prescott, research director with Hitwise, an Internet research firm.
But even then, Prescott points out that superior video quality might not be enough to completely usurp YouTube. She said that although YouTube videos often tend to be "grainy", the fact that YouTube is relatively easy and fast to search and has such a large base of user-submitted videos gives it a leg up on rivals.
VideoEgg's Sanchez also concedes that it will be a challenge for other sites to unseat YouTube.
"Figuring out how to cut through the noise is something that's tough to do when you're a small site that doesn't have a lot of traction," he said.