What will be YouTube 2.0?

By Rachel Rosmarin

updated 6:07 p.m. ET Oct. 9, 2006

Burlingame, Calif. - YouTube’s officially off the market, much to the disappointment of media moguls everywhere. Google is buying the videoclip-sharing destination for $1.65 billion in stock, the companies said Monday.

Companies like Viacom and Yahoo!, which were both reportedly interested in YouTube, might be nursing their wounds, but now is no time to wallow — there are plenty of fish in the sea. Microsoft, Time-Warner, the Walt Disney Co. and NBC could also be looking to refine their video strategies, and there are enough possible acquisition targets to lend every Internet portal and media conglomerate a strategic hand.

(MSNBC.com is a joint venture of Microsoft and NBC Universal News.)

With YouTube, Google went after a ready-made audience. More online video viewers flock to YouTube than to any other site, according to Hitwise. That's in large part because YouTube has the most videos. But sheer size isn’t the only reason to acquire a video startup. Some of the dozens of tiny companies populating the Web harbor unusual tools and business models that haven’t hit it big, yet could become secret weapons.

None of the big video sites has figured out how to make a popular and useful video search engine that searches the entire Web for relevant movies. Neither have they been able to avoid the high costs associated with hosting videos on company servers. And it’s been tough to find a way to show ads on a video site that doesn’t annoy viewers.

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If today’s video startups don’t solve these problems completely, tomorrow’s might. There may be hundreds of these companies today, but in a few years there will be thousands, says Dmitry Shapiro, founder and chief executive of Youtube competitor Veoh, who likens the state of video on the Web today to the early days of the Internet. “It's like we’re in the 1994 of video, and YouTube is Geocities — a very early success.”

VideoEgg
A year after its launch, easy-to-use video upload site VideoEgg took money from Starbucks Chairman Howard Schultz, partnered with popular social-networking sites like Bebo and Hi5, and created its own advertising network that often allows users to choose whether they want to watch an ad. If an ad looks entertaining enough, the theory goes, users will decide to watch it. While VideoEgg doesn’t amass as much content as some of its competitors do, its unusual ad platform gives the company a smart business model. The company could be the ideal acquisition target for a media company with lots of content to distribute but no clear way to make a buck off of it, such as a television network like General Electric's NBC Universal. Alternatively, VideoEgg could profit from renting its ad strategy and platform to a variety of video-sharing competitors.

Metacafe
Video upload site Metacafe has seen traffic nearly double in the last six months, according to NielsenNetratings, which puts it in ninth place among popular video sites. Flush with nearly $20 million in funding, the site’s Israeli founders have focused on creating a more refined YouTube. Editors review each video and decide whether to promote it. Videos that could be buried under YouTube’s avalanche of submissions could get plenty of face time at Metacafe. The site has also chosen to implement “pre-roll” video ads that show up at the start of each movie. So far, YouTube and Google have rejected this highly visible ad strategy. Many viewers see forced video ads as a nuisance.

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