SpectatorBytes

During the Bear Stearns Conference, Google’s Tim Amstrong described YouTube as the “brightest light” in terms of display-ad potential (see Google: Moving Aggressively Into Display Ads). I remember many people who were surprised at the value that Google paid for YouTube a couple of years back. However, it was clear then and they confirmed today that the value of YouTube emanates from the fact that this asset provides a foundation for the creation of an ad network.

This is an important lesson. In digital media, “at-scale” destinations create significantly more value than ad networks. This is something that seems to be continuously forgotten over the past two years. Ad networks eventually need to marry “anchor” destinations to establish leadership positions. Today, the best examples are Google.com and Ad Sense, and AOL and Advertising.com. At-scale destinations provide the needed foundation to attract advertisers (“must buy status”, and optimize product offering. In turn, this allows ad networks to attract third party publishers and build their publisher network. This is of critical importance because these third-party publisher networks are the one who ultimately enable ad networks to scale and maximize their value (enlarge pool of inventory available to advertisers, which in turn brings more liquidity to the overall system)

There are some display ad networks that have managed to build a position without “anchor” destinations. However, none of these networks seem to have achieved the scale of Advertising.com, which has the AOL network as its anchor tenant.
Both MySpace and Facebook can create “game-changing” value for its owners because they have the opportunity to create the ad networks that could power social network solutions across the entire Web (this assumes that they are going to be different from current display ad solutions.)

Needless to say, as publishers, these assets will create sizable value regardless. However, if they deliver a new monetization solution for the web that value grows exponentially.

This does not imply that the winning ad technologies will be developed organically by the “destination” companies. Funny enough, these companies will most likely have to acquire the ad network technology from a third-party (see specialists win post).

Today, there is not doubt that video monetization will scale over the next few years to become a large business. Analyst expect online video ad revenues to reach X billion by 2011. As the leading video destination and platform on the Web, YouTube’s puts Google in a privileged position to be one of the major winners.

There is a lot of potential value in that…certainly a lot more than $1.65B.