You knew it was coming, but perhaps just never figured that it would take this long. Just about a year after Google bought YouTube, it has announced plans to integrate AdSense with the popular video site. Many analysts questioned Google’s acquisition of YouTube, since at the time they were not yet profitable. However, with Google’s large cash reserves, they could afford to buy the dominant video-sharing site (after failing to take over the market with their own offering) and let it incubate while thinking up a game plan.

Killer Ads?

The ads won’t be forced onto the beginning of videos as some had feared, nor will they be tacked onto the end where most probably won’t bother to watch. Instead, select videos will be available to AdSense publishers to have ads placed alongside the videos. From the official Google AdSense blog, it appears that both banner ads and the text-ads that Google popularized will be available, and both will be integrated into the flash content with the YouTube video.

This is a fairly significant move by Google, and though they’ve experimented with ads, they have don’t anything close to this scale with respect to video. It remains to be seen what effect this will have on viewership levels. YouTube is a widely-accessed website, and its users are more representative of the average Internet user. This contrasts with a site like Digg, which is dominated by enthusiasts who have significant disdain for online advertising. Thus, if these video ads are placed on sites with audiences similar to YouTube, they may not cause as much of an uproar as expected.

On the other hand, the ads can be somewhat intrusive. Looking at them reminded me somewhat of the scene from Idiocracy, where the guy from the future is watching an episode of Ow! My Balls! on what appears to be a 12′ wide plasma screen dominated with advertising around the borders. Sites that choose to opt-in to this program may receive a backlash in the form of decreased readers annoyed at the new media. Another thing that remains to be seen is whether extensions like AdBlock Plus will be able to successfully filter out these new ads.

In any event, publishers will receive feedback from their readers (whether they like it or not), and will adjust their usage of these new ads accordingly. Most likely, it’ll be “more of the same”.

Some will say that this deal officially marks the beginning of “Bubble 2.0″, since YouTube is not yet profitable. I’m assuming Google has some pretty bright people working for them, so what was their reasoning behind this move? Certainly, $1.65 billion USD isn’t a lot for them, ever since their IPO, but the real concern is YouTube’s high operating costs - serving up all those videos takes up a lot of bandwidth, which in turn translates into large monthly bills.

Cornering the market

However, the major reason behind this move must have been to corner the online video-sharing market. Google Video, launched not long ago, was a direct competitor to YouTube, but it received lukewarm support from the majority, who were already entrenched in YouTube. By grabbing hold of YouTube, Google effectively has a near-monopoly in the video-sharing market. They must have some future plan for how they will profit from these sites, besides just advertising revenue and “getting their name out there”.

Furthermore, operating costs aren’t the only problem they need to think of. Copyright violations are rampant on YouTube, and companies haven’t been afraid to pursue these matters in court - Google will certainly be dealing with more potential lawsuits in the coming months and years over material used in videos shared on their sites.

Overall, I don’t know where I stand on this. On the one hand, this could prove to be a brilliant move if Google can successfully lead its YouTube branch into profitability - if it doesn’t, it will be a hallmark and a defining moment of “Bubble 2.0″.