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In October 2006, the global Internet industry witnessed Google's acquisition of the leading online video player, YouTube, for USD 1.65 billion. The acquisition was widely acclaimed by analysts, who agreed that YouTube would enhance Google's video offering, thereby directing a significant proportion of online advertising revenue to Google. Some analysts, however, were more skeptical on the grounds that the various copyright issues associated with YouTube might prove costly for Google. They also cautioned that these lawsuits might add to Google's challenge in seamlessly integrating YouTube into its fold.
  
At the time of the acquisition, YouTube was facing enormous challenges in the form of declining operating profits, legal issues stemming from copyright violations, an unclear business model, etc. The acquisition therefore benefited YouTube significantly. Google, however, has not yet been able to cash in on the deal as much as was expected. Even after 12 months of the acquisition, Google is yet to realize significant benefits from the deal. At the time of the acquisition, Google announced that it would introduce technologies to curb the distribution of non-copyrighted content on YouTube. It has been a year since the acquisition and such an anti-piracy system was introduced by Google only recently, and then too, it has not been able to create a necessary impression on content owners like Viacom. However, Google's attempts to monetize YouTube continue. In August 2007, Google announced a new overlay-styled ad model for YouTube that was expected to be five to ten times stronger than the other advertising formats on video sharing sites. This was followed by the launch of a video units program in October which will allow AdSense users to embed relevant and monetized YouTube videos on their sites. The revenue from this will be divided among the content creators, the third-party sites, and Google.
  
We believe that Google's acquisition of YouTube has been a strategic move. Online video is the rising star in the global Internet market and analysts believe that the potential of this emerging phenomenon is unlimited. Google's acquisition of YouTube has opened up new avenues of opportunities for the company in the online advertising as well as in the video sharing segment. With the YouTube deal, Google is also trying to build a stronger name for itself in the social networking market. However, there are some concerns around the deal that are holding analysts back from giving it a unanimous 'thumbs up'.
  
Online video advertising is simpler in terms of placing ads, but analysts believe that it still remains a low-profit business because the cost involved in delivering a video online is high compared to money generated from advertising. However, the significant price Google paid to acquire YouTube has definitely raised the interests of the players within the industry. We believe that online video advertising holds immense potential but it is still in the nascent stages. It is also likely that the Google YouTube deal will trigger a series of similar acquisitions in the market as Google's major competitors, such as Microsoft, Yahoo, etc., react to counter the various synergies that Google expects to harvest from the deal.
  
In spite of the healthy competition within this market, a few analysts foresee the Google YouTube merger a probable monopoly threat in the online video sharing market. We, however, feel that Microsoft's acquisition of Aquantive, a digital advertising company, will definitely give some sort of competition to Google's plans with online advertising. Moreover, Microsoft has announced plans of investing USD 2 billion in developing its online advertising platform. We believe that it is still too early to predict the fate of the Google YouTube merger. The long-term feasibility of the deal depends on how Google tackles issues like copyright, lawsuits, etc., and on how effectively it manages the pricing model.
  
Google, a name synonymous with Internet search, tried to strengthen its dominance in the booming social media market with the acquisition of user-generated video-sharing site YouTube in 2006.
  
The Google-YouTube merger is expected to bolster Google's position in the emerging domains of social networking and online advertising. Although Google had already forayed into social media with its networking site 'Orkut', the YouTube acquisition is expected to give the search giant unprecedented leverage in the user-generated content (UGC) market due to YouTube's sheer popularity among Internet users. The merger is also likely to open up newer avenues for Google in the form of online advertising.
  
However, the growing number of copyright lawsuits against YouTube is posing a major bottleneck for the company. Although Google has recently launched anti-piracy filtering technology to prevent the circulation of copyrighted content through YouTube, the technology has not satisfied big content houses such as Viacom.
  
Our partners at Analysts Perspectives present perspectives and predictions about the Google-YouTube merger.
  
Some key findings include at the time of the merger, YouTube accounted for 46 percent of the Internet video market while Google held a meager 11 percent share; as a result of the merger, Google will be able to reach the number-one position in online video and will also be able to enhance its position in the booming social networking market; and various copyright issues associated with YouTube are posing a considerable challenge to the success of the Google-YouTube merger.