Google recently announced Google Video, a foray into video-on-demand (see article here). I’m sure a lot of people will hoot and holler about how this will spell the end for Blockbuster and Netflix. Moreover, they will suggest that Google’s stock should be valued even higher than it currently is (we all know how I feel about that).

As I predicted in my 2006 predictions post, however, I think the real value of Google Video – and the real loser here – is the online pornography industry. To be clear, I am not an expert when it comes to online porn (either as a participant or user). But I do know this: porn and gambling are huge online industries. And despite Google’s promise to “Do No Evil”, I have no doubt that all of the search engines would love to get a chunk of one or both of these industries.

In fact, Google and Yahoo once allowed gambling advertisements, at least until the government threatened to sue them for aiding and abetting illegal activity. Now you will see ads with claims like “play poker for free” that send you to sites that, oh by the way, you can also play for money on. For the most part, however, the cash cow that is online gambling has grown with little monetization from the search engines. And until the government finally allows online gambling (which they will someday, the tax revenues are too tempting), the search engines will likely stay on the sidelines.

So that leaves porn. As anyone who ever checks their spam folder knows, there are thousands of different porn Web sites across the Internet. I suspect that most of these are “Mom and Pop” type companies – probably a guy in his basement that hires local ‘aspiring actresses’ for a few dollars a day, and then uses some cheap server to host a crappy Web site.

This is a highly inefficient market, for two reasons. First, because the sellers are fragmented across the Internet into thousands of Web sites, it is difficult for the buyer to really see the entire market. A buyer would have to look at dozens of different Web sites – which would take hours or days – to determine which site has the best “product” for him (or her).

Second, the market is inefficient for the “actors”. A local actress in Pittsburgh, PA has only a few choices when it comes to selling her wares (the local porn Web sites). As a result, she gets paid a lot less than she would if she could choose from all of the different porn Web sites across the world, or better yet, not have to work with a middle-man at all.

This is the same type of inefficient market that existed prior to eBay. A buyer of farm memorabilia in New York City would have to pay way too much money to purchase his replica John Deere tractor from the local antique store, simply because the supply in NYC was so limited (his demand outstripped the limited supply). Similarly, a seller of farm memorabilia in Iowa couldn’t make very much money, because the supply was so abundant (with little demand).

Once eBay came along, the supply and demand shifted from being local and inefficient to national (eventually worldwide) and efficient. On eBay, the true price of the John Deere tractor is achieved because all of the buyers and sellers have been aggregated in the same place. In economic terms, this is known as perfect competition.

Google Video will enable such perfect competition for online porn. Now, an actress in Pittsburgh will no longer have to deal with “JimmysHotGirls.com” down the street – she will be able to upload her own video, right onto Google Video. Google will, in turn, enable anyone in the world to download her video – taking a rev-share for Google and giving the rest directly to the actress.

Similarly, a purveyor of online porn won’t have to browse hundreds of small sites to find what he/she is looking for. He will be able to go straight to Google Video, where he will be able to use Google’s algorithmic technology to hone in on the videos that best suit his tastes.

Google Video, like eBay, will create a perfect and efficient market for online porn. Because this benefits both the buyer and the actual seller (the actress, as opposed to the middleman), this concept could rapidly become the de facto way to watch online porn. And because Google will take a few pennies from each transaction, this could be a huge part of Google’s business in the future.

Let’s face it, pornography is a huge industry. Google would happily continue to take money from online gambling if it could do so legally. There’s no reason to think that Google will turn away pornography when the money starts trickling, then flowing, in.

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David Rodnitzky
David Rodnitzky is founder and CEO of 3Q Digital (formerly PPC Associates), a position he has held since the Company's inception in 2008. Prior to 3Q Digital, he held senior marketing roles at several Internet companies, including Rentals.com (2000-2001), FindLaw (2001-2004), Adteractive (2004-2006), and Mercantila (2007-2008). David currently serves on advisory boards for several companies, including Marin Software, MediaBoost, Mediacause, and a stealth travel start-up. David is a regular speaker at major digital marketing conferences and has contributed to numerous influential publications, including Venture Capital Journal, CNN Radio, Newsweek, Advertising Age, and NPR's Marketplace. David has a B.A. with honors from the University of Chicago and a J.D. with honors from the University of Iowa. In his spare time, David enjoys salmon fishing, hiking, spending time with his family, and watching the Iowa Hawkeyes, not necessarily in that order.