The news that "Don't-Be-Evil" Google has struck a deal with yet another deal with a unit of News "Evil-Is-Our-Middle-Name" Corporation is the talk of the blogosphere today. This Financial Times article describing Google's tie up with UK entertainment company British Sky Broadcasting (BSkyB) is as good an overview as any.
While Sky's press release would like you to know that this deal is variously, leading, ground-breaking, wide-ranging, compelling, customized, and innovative (and that's within the first graf). I just want to know why it's important (and speculate on why these two companies got together). Let's start with Sky.
Sky's a UK-based, vertically-integrated media company—Time Warner with an accent. They create content, they aggregate content in the form of channels like Sky One (which are distributed by third party cable operators like NTL, too), and they distribute that content (and content aggregated by others, of course) to their customers via digital platforms. The primary platform would be digital pay TV, but an increasingly important secondary platform is broadband. Sky has been aggressive about providing their customers the ability to view the media they've paid for on more than one device, or at a time that suits them (within limits, of course—you can download some of the TV shows and movies that play on Sky channels to your PC, but it'll be crippled with Windows Media DRM, so, sorry Mac, iPod, and Linux users…). Increased broadband presence also means Sky's going to provide ever-more services to their customer: entertainment, communicatons, commerce. The goal is for Sky to mediate their customers' every interaction with the worlds of entertainment and commerce whenever they're at home, by a phone, or on their computer.
Google, of course, is building a comprehensive digital advertising network. The goal for them is to be a one-stop shop for advertisers as they attempt to reach the broadest audience possible with the most precisely-targeted set of messages possible. Google won't stop until they can promise an advertiser that they can send the right message to the appropriate customer through every advertising vehicle possible: internet (search, banner, rich media), broadcast and cable television, radio, print. Hell, I bet they have a plan for outdoor and indoor display.
The quick wins in this partnership are all on the broadband and web side: Sky Broadband is going to deliver what looks like a white label Google Apps for Your Domain (start page, mail, chat, calendar, and web pages) to their customers. Good for Sky Broadband, since this means they're effectively outsourcing the management and operation of those services to someone with far greater skills and expertise (and lower costs per user). Good for Google, as they add a potential million users to their services. That's a million more unique visitors generating pageviews and dropping behavioral data for Google-delivered targeted advertising.
Sky will also power their web properties' (including Mykindaplace.com, SkyOne.co.uk, Monkeyslum.com, and Livingit.com, among others) search via Google and run Google AdWords ads on their results pages. Sky gets some way of making money from the search function, and Google gets more inventory to sell to their advertisers.
More intriguing is the idea of licensing the YouTube platform to create (what sounds like) a Sky-branded YouTube "competitor." I suppose Sky figures there's a need in the world for another YouTube that's exactly like YouTube, only larded with Sky content, and I can't see the harm to Google if, in the end, they can target whatever advertising they send to YouTube.com just as easily to "SkyTube."
The companies have the option of extending the scope of these agreements (for example, offering some kind of customized Google Talk VoIP services to Sky Broadband customers, or expanding the advertising agreement to include AdSense ads on non-search pages on Sky web properties).
The FT article, presumably based on information from Sky and Google insiders, connects the most interesting dots in this deal:
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.
And all the pieces come together.
If BSkyB is trying to assemble a multi-platform interface between the customer, media, and commerce, then making money requires an advertsing platform that dovetails with that strategy through breadth of channels and intelligence of targeting. If you're aggressively building that ad platform, you need to partner with a media company aggressively pulling all the pieces together (along with a decent underlying build-out of broadband infrastructure to the customer).
That's the logic behind this deal. It makes money (and sense) for both parties from the get-go, but the medium term implications are even bigger.
Tags: Google, BSkyB, YouTube, advertising, search, broadband
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The slides from my talk are available in two versions. The 
