Fox outfoxed by Google

According to TechCrunch, some executives at Fox are unpleasantly surprised by Google's acquisition of YouTube:

A source inside of Fox, which owns MySpace, tells us that they were surprised that Google was aggressively pursuing a deal with YouTube, given Google’s nearly $1 billion advertising relationship with MySpace. MySpace views YouTube as a competitor, and recent Hitwise data shows Myspace Video quickly catching up to YouTube.

The only surprise is that Fox is surprised by this.

Last month when the MySpace-Google deal was announced, I wrote this:

MySpace is essentially outsourcing its kitchen over to Google and becoming another node in its network. When that happens, MySpace will actually deliver *less* traffic to retailers, while feeding the Google beast and giving it an even bigger share of web traffic. Retailers looking at their log files will see the traffic coming from "Google AdSense", not from MySpace.

In this relationship, Google is the only one that walks away with the long term assets of advertiser base and deep expertise in monetizing traffic.

Google makes ~5x more money (bottom line) on each ad impression on a Google-owned page than it does on a 3rd party AdSense page. If the company wants to continue growing the way it has so far, they won't be doing it via deals like MySpace on which their margin is negotiated down to barely nothing. They will do this by building and acquiring their own media, which is 5x more valuable to them.

Deals like the MySpace-Google deal are pretty much a trojan horse for Google to build its direct advertiser relationships and monetization expertise on the shoulders of others. The real money will be made on the content that Google owns/will own. It's a loss-leader game.

Every time Google signs a mega-deal for powering a 3rd party media company, its almost guaranteed that they will shortly after get into that business themselves and become the biggest competitor around (with all the ad relationships). If they don't balance Google-owned media with 3rd-party ad syndication, they risk significantly diluting their overall profit margins because of that 5x factor. And that doesn't seem like something they're intent on doing.

IMHO - The best use of the Google money going into MySpace, AOL, Ask.com, etc is to build or acquire their own in-house ad capabilities and eventually phase out Google. Otherwise they are bound to lose the battle both on the ad front, as well as the content front.

I wrote a couple of related posts on this here and here, and probably a few other places I can't remember.

Full disclosure + a small plug: I am co-founder of Quigo. We offer media companies a solution comparable to AdSense, except that it is a private label. And we don't compete with our publishers on media. So feel free to consider all of the above to be 'interest driven objective commentary'... ;-)