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In the last of three installments, The Motley Fool's Mac Greer puts these questions to Pulitzer Prize-winning Breakingviews.com senior commentator David Vise, author of The Google Story.
Question: Let's talk a bit about the implications of the Google-YouTube deal for some of the competition. Where do you think the deal leaves Yahoo!?
David Vise: Yahoo! looks weaker than it did before this deal, because Yahoo! once again has been bested by Google. Yahoo! tried unsuccessfully to launch its own social-networking service. Yahoo! was left at the altar when Google struck an ad partnership with MySpace. Now . we have a combination video-sharing/social-networking site that is successful in YouTube. Yahoo! is struggling right now. The stock is down, but the stock may represent a good value, because a lot of bad news is getting priced in. Everything is going wrong at once at Yahoo!.
Hertz always needs an Avis, right? But during a period like this, when homebuying is down and all the rest, there are not all the ads for mortgages that there were online. If you are only going to advertise in one place, it is going to be on Google, not on Google and Yahoo!. So Yahoo! has gotten hit by the slowdown in the housing market. Yahoo! has gotten hit by the lack of rollout in the automobile industry from their display advertising, which makes up a good portion of their revenue, and Yahoo! has been hit because their existing ad platform doesn't convert and monetize traffic as well as Google's. And Yahoo! is delayed in rolling out something called Panama, which is a next-generation ad platform for Yahoo!, until sometime next year.
Having said all that, there is an awful lot of bad news that is already priced into Yahoo! stock, so it may actually represent a better long-run value, according to some of the folks that I talked to, than stocks where the good news is already reflected. Sometimes the best time to buy is when something is down and out. Yahoo! is still the busiest site on the Internet today.
Question: And where do you think the Google-YouTube deal leaves Microsoft?
David Vise: I think Microsoft missed the Internet revolution.
Question: That's a pretty big revolution to miss.
David Vise: Yeah, and they missed it. I think so far, they are continuing to miss it. Their inability, despite all their resources, to become an attractive partner in deal after deal where Google bested them. It happened when Google cut a deal with AOL. It happened here. These companies don't want to align with Microsoft. They want to be part of the Google world, and if Microsoft told them, "We are going to leave you alone and let you run independently," I am not sure they would trust them. When the Google guys tell them that, they believe them.
Question: And how about Time Warner
David Vise: I think Time Warner is going to benefit in a substantial way over time from the growth on the Internet in video viewing, because Time Warner has a lot of very valuable entertainment assets that are in the video space, and they will be delivering some of them through their cable systems. They will be monetized through advertising. The Internet will become another major, major source of revenue over time for an entertainment and media colossus like Time Warner, and they will have plenty of opportunity to look to see where they want to distribute. They don't need to own the movie theaters, nor do they need to own the sites.
But I do think, over time, we are going to see a range of stuff -- just like we have seen a proliferation of cable channels. How many people who use the Internet every day don't go to YouTube? Most people. A lot of people would prefer something that was more segmented -- maybe something that was just sports videos, maybe something else that was just old movies -- that are Westerns, with John Wayne. Maybe somebody else would prefer videos that gave you the best about cooking that was available anywhere. But I think it is just like cable TV. We are going to see that kind of segmentation. You are going to see some broadcast, and you are going to see some narrowcast, on the Internet.
Question: And we just talked about a few companies there. What company or companies do you think are most affected by this Google-YouTube deal?
David Vise: Well I think News Corp. is affected by it. I think that all of the major players in the Internet and media and motion picture and television space are affected directly and indirectly by it, but I think the industry that is affected by it that nobody talks about is Madison Avenue. Because who is looking to Madison Avenue right now to figure out how to do some of this advertising? Will Madison Avenue lose its place, or will Madison Avenue end up getting to be involved in some aspect of placing, buying, purchasing these kinds of ads, or coming up with the creative campaigns behind them? Or is Google going to take over more and more of that function and role as time goes on, as they have been doing? Is Google going to make it possible for people to create their own ads at a much lower price and not have to pay the sort of fees to Madison Avenue?
Google is a very disruptive technology, and it has replaced industries and created new ones. I think Madison Avenue is very much going to be affected by what I see as the next major wave of fresh advertising online, and that is video advertising.
Question: David, let's close with a big-picture question here. Google is still a relatively new company, founded in 1998. It has only been public for a little more than two years. I know you spent a lot of time researching the company for the book; you have talked to the founders. What does Google want to be when it grows up?
David Vise: Google wants to organize all of the world's information and make it universally accessible. Google wants to change the world in the process by democratizing the availability of information, and that is exactly what they are doing in this acquisition. They want to organize and make available information that is on the Internet today. They want to organize and make available information, like books, that is not yet on the Internet in most cases.
They are very ambitious. They're working on wireless Internet and all kinds of other things. I think we're going to continue to see them at the epicenter of the Internet as the evolution continues. IBM defined the mainframe era. Microsoft defined the PC era. Google will continue to define the Internet era.