Bret Piatt

Right now Google is a “one trick pony” and eventually like Microsoft did with DOS and then Windows you saturate that market and can only grow at the pace of the industry.  The only way to have huge growth again is to find a new line of business.  For Microsoft it was and still is the Office suite (Word, Excel, PowerPoint, Access).  For Google it is going to be YouTube…

This isn’t going to happen over night but it isn’t much more than 5 years out.  Early adopters are already consuming Netflix through their Xbox360.  TV manufacturers are starting to include network adapters and PC manufactuers are shipping home theater studio PCs with remotes.  The next generation of home game systems will all be TV/Movie capable; Microsoft can already run the AT& U-Verse software on an Xbox360 (Microsoft is partnered with AT&T with the video delivery software).

So how does all of this help Google and YouTube?  Right now for TV+Broadband the consumer spends $80-200/month with the broadband component costing $20-80 leaving $60-120 for the TV content portion.  Broadband $/Mbit will continue to become more efficient allowing more and higher quality video to be delivered over it.

Time Warner Cable already sees this coming and they put new bandwidth caps on their broadband (5GB, 10GB, and max 40GB tiers) that limit their users to ~9 hours of HD quality video per month.  AT&T only offers their highest speed broadband bundled with TV service (you can get 6Mbps DSL for $35/month which is enough to deliver 1 HD stream).  Verizon offers their FiOS service with or without TV and for $69.99/month you get enough bandwidth to have 3 HD streams going at once.

So as long as the carriers providing the bandwidth don’t lock Google out they’ll be in the game for the TV portion of the revenue.  Right now all cable providers are limited to providing commercials based on service area — Google and YouTube can deliver commercials to each subscriber.  Google can cross reference your search information and base the commercials you see on that.  Because of this they can generate more $/commercial.  Imagine this — you searched earlier in the day for ‘new car’ and went to Ford, Audi, and BMW websites — now you’re watching the newest episode of “Super Show” on YouTube and Google can show you car commercials.

The TWC, Cox, Comcast group will fight this as hard as they can because they don’t have a carrier backbone so if you’re a traditional cable customer expect to see further limits like the one TWC has in testing in a few service areas now.  AT&T and Verizon are better off as they don’t need to pay transit fees for traffic from their subscribers across the Internet.

With mobile devices starting to become video capable Google is in the drivers seat here as well.  YouTube already works perfectly on my BlackBerry Bold and as mobile carriers move from 3G to 4G and battery technology makes huge strides (thanks to the investment coming from the automobile industry) many of us will be watching TV in the future on our phones.

What about Hulu? What about other video startups?  Just like Microsoft having the OS it was much easier for them to create a synergy and add the Office suite.  All of the pure video plays lack the dominance in search that give them the ability to better place relevant advertisement.

The TV advertising market in the US is between $50-60B annually.  Google can double their revenue by getting half the market share in TV advertising that they have in Internet search.  Android, cloud computing, business e-mail and office applications, and the rest of their current projects don’t have the potential that TV does.  They can be good profitable business units but Google’s route to the next major growth will or won’t happen based on their ability to execute with TV.