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December 7, 2006

More on the BSkyB Google deal

Posted by David Hunter at 9:54 AM ET.

As the details of yesterday’s BSkyB agreement with Google become clearer, it is evident that it is bigger than one might believe at first glance, since Google is trying out what they consider to be an important new business model with BSkyB as the pilot project:

The partnership will at first see Google provide its user-generated video, e-mail, search and targeted advertising tools to customers of BSkyB’s five-month-old broadband internet service – the first licensing of the video tools Google bought when it acquired YouTube for $1.65bn in October.

The companies plan to extend the partnership to BSkyB’s core television platform, however, by replacing traditional 30-second television adverts with targeted commercials stored on hard drives in BSkyB’s set-top boxes.

Google’s AdSense technology, which brings up adverts relevant to search terms of users, would be deployed alongside BSkyB’s knowledge of its customers’ profiles and interests.

“This is a really, really big deal for us,” said Eric Schmidt, Google’s chairman and chief executive. “If it works, it will become our most lucrative deal from the get-go.”

Nicholas Carr:

The advertising aspects of the deal are notable, not least in underscoring, as the New York Times recently reported, that “the future of advertising” is taking shape not in the U.S. but in Britain. But it’s the licensing aspects that are most intriguing to me. The deal shows that Google is happy to be an infrastructure provider, to allow others to slap their brands on its technology. We’ve known this before, of course. Its “Apps for Your Domain” service allows companies and universities to use Google products like Gmail under their own names. But the Sky deal goes much further down the private-label path, particularly in allowing Sky to set up a separate video portal under its own brand. In a way, Google is giving Sky the technology for building a competitor to Google’s YouTube service.

It’s not immediately clear why diluting the YouTube hold on viewers of personal video is such a swell idea. Perhaps for insurance? As a loss leader for the rest of the deal? Net gain in traffic? We’ll have to see how this initiative works out, but I’m a trifle surprised at the emphasis Google is publicly placing on it.

By the way, the choice of Britain (besides the presence of a willing partner) is explained in the first article:

Mr Schmidt said Google had chosen the UK as a “test bed” because of fast broadband speeds and high broadband penetration. “Britain is ahead. They have so much bandwidth it changes the definition of how people use Google.” The UK market, already 15 to 16 per cent of Google’s revenues, was “exploding”.

Update: Yet more details:

Google will run mail services for users with addresses, host a portal for user-generated video content, and deliver targeted search advertising on BSkyB’s Web sites, the companies said Wednesday.

The companies also plan to build a video portal featuring content generated by Sky subscribers. It will run on systems developed by Google for its Google Video portal, but will be branded as a Sky service, the companies said.

The video portal will allow Sky customers to see only content posted by other Sky customers, said Google spokesman DJ Collins. However, content posted by Sky users will also be visible to other users of the YouTube service that Google acquired in November, he said.

I guess it’s only a partial dilution of the YouTube brand.

Filed under Coopetition, Google, Microsoft, Sky

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