If you thought the online advertising industry was a big business, you’d be mistaken if you compared it to the offline advertising industry. Combined, these industries rake in $800 billion a year worldwide, yet online advertising only makes up less than $100 billion of the total. According to Google Inc (NASDAQ:GOOG) Chief Business Officer Nikesh Arora, offline advertisers will become increasingly more comfortable with online advertising, resulting in hundreds of billions of dollars of ad money shifting online. Five years from now, Arora believes there’s a “reasonable probability” that over 50% of total advertising spending goes online. To say that Google Inc (NASDAQ:GOOG) is in great position to benefit would be an understatement.
A big catalyst
In order to convince the marketing world that online advertising will one day make up the lion’s share of advertising budgets, something powerful needs to come along for advertisers to take notice. Arora believes that something is Internet-connected televisions, or smart TVs, an area in which Google Inc (NASDAQ:GOOG) has not been wildly successful to date. However, he argues that in the coming years, smart TVs will go from “nice-to-have” to “must-have” in the minds of consumers, forcing marketers to allocate more ad dollars online.
YouTube is shaping up to be a huge winner here as Google Inc (NASDAQ:GOOG) continues to transform the site into becoming more desirable for users and advertisers alike. Through the use of channels, Google is hoping it will improve the experience by connecting users directly with content, aligning more closely with the traditional TV experience. YouTube channels should be thought of as Google Inc (NASDAQ:GOOG)’s response to a DVR, but instead of recording content of interest, users subscribe to content. Both approaches accomplish the same exact thing, which is to bring relevant content directly to the user so they don’t have to actively seek it out.
Not only are YouTube channels more convenient for users to connect with relevant content, the value preposition for Google is tremendous. According to YouTube head Salar Kamangar, packaging a video within a niche-specific channel has the potential to bring 10 times more in advertising spending per 1,000 users than if it were stand-alone. The justification here is that marketers have better odds of targeting their intended audience.
The third wave
The Internet is a compelling replacement to the traditional broadcast television model because it invites the possibility of a two-way interactive user experience. Not to mention the Internet successfully caters to niche interests on a truly global scale at a substantially lower cost than the traditional broadcast model. In the future, Kamangar envisions a world where you will be able to watch a live sporting event with people you know a la Google Hangouts, while being able to choose the camera perspective of your liking. As we approach the third wave of media where the Internet becomes the medium, YouTube is setting itself up to become the platform. Over the past few years, Google has handed out over $100 million dollars to create new channels, in hopes not only to drive increased advertising spending for “professional” content, but for users to increase their stickiness to the platform.