Strike two for Yahoo?

Google’s deal Monday to acquire Internet video-sharing sensation YouTube for $1.65 billion likely dealt the biggest sting to rival Yahoo.

YouTube, with millions watching its quirky videos, represents an enormous Internet real estate land grab for Google in online advertising (see Google Grabs YouTube for $1.65 Billion).

YouTube serves up more than 100 million videos per day and holds 46 percent of the video-sharing market compared with Google Video at 11 percent.

For Google, those numbers are an opportunity, Deutsche Bank analyst Jeetil Patel said Tuesday in a research note. “However, while Google has monetized its services, note that YouTube’s video-based inventory represents an under-penetrated ad opportunity for the companies,” he wrote.

Google’s opportunity, Mr. Patel noted, could come at Yahoo’s expense. The analyst said that the No. 2 search company may very well be affected in the area of display ads.

“At this point, we estimate 2007 display ad growth at 24 percent, which could come under pressure should ‘GooTube’ aggressively pursue monetization of video,” he said.

The analyst noted that this could only compound the challenges facing Yahoo in display ads, personnel departures, and increasing ad inventories from MySpace.

Google’s agreement to acquire YouTube comes as a second blow to Sunnyvale, California-based Yahoo after it ended up on the losing end of the search king’s $900-million ad deal in August with MySpace (see Google, MySpace Ink $900M Deal).

Google Defense

The acquisition could also be a defensive move against Yahoo and Microsoft’s MSN. Yahoo, Microsoft, and MySpace had been among the companies interested in acquiring San Bruno, California-based YouTube, according to a report in The Wall Street Journal.

Mr. Patel noted that Google’s buy also illustrates “the slow pace, cultural differences, and unwillingness to pay at Yahoo for a potentially synergistic asset.”

This lack of ability to seal a deal comes despite the fact that Yahoo CEO Terry Semel, a former Warner Bros. chief, has deep industry contacts within the entertainment business and YouTube is increasingly making inroads with big media players (Deal Portends GooTube).

Meanwhile, focus will likely turn to Facebook, the next piece of highly coveted Internet real estate. Yahoo is seen as a likely contender in the bid to acquire the social-networking site (see Investors Digest GooTube Deal).

Shares of Yahoo declined $0.62 to $24.41 in recent trading Tuesday.

Contact the writer:SMartin@RedHerring.com

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