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Before the Google-YouTube merger was announced, it didn’t sound ludicrous for Yahoo’s Terry Semel or Microsoft’s Steve Ballmer to speak boldly of competing against Google.

But Google has become so big, with advertisers willing to pay such a premium to place ads on the search engine, that a virtuous “network effect” has finally pushed Google out of their reach. EBay did it with auctions. YouTube enjoys the same effect — people flock to post videos there because they know it has the most users, and they want their videos to be seen by the most people. The biggest player wins. With the “two kings” (GooTube) together, there’s no stopping it. The concessions from Google’s competitors are eye-opening.

Here’s Microsoft chief executive Steve Ballmer speaking to BusinessWeek, admitting that that it is almost game-over:

The truth is what Google is doing now is transferring the wealth out of the hands of rights holders into Google. So media companies around the world are all threatened by Google. Why? Because basically Google is telling you how much of your ad revenue you get to keep. They better get some competition. Us. Yahoo!. Somebody better break through or you can short all media stocks right now.

As long as there are two, you can hold onto media stocks. Google understands that. And that’s one reason why they’re willing to lose money up front. Just look at some of these deals. That MySpace deal (where Google provides the ad engine for MySpace). We bid a lot of money on that MySpace deal. And we got outbid. We wanted to win that MySpace deal. At some point, we said we can’t do this. Now Google can afford to spend more than us and Yahoo because they have more people in their ad system, so they’re getting better yield, effectively.

There are fierce competitors on the content side, the folks who compete with YouTube for video hosting — such as News Corp., which owns MySpace. MySpace users can load videos at YouTube and link to them — something that MySpace apparently considered prohibiting. MySpace makes a ton of money from Google ads, and so News Corp. looks like it wants to work out a deal — but it could team up with Viacom and GE’s NBC and demand up to billions of dollars in copyright penalties (see WSJ).

The sabre-rattling Dick Parsons, chief executive of Time Warner (which own AOL), said his group would pursue its copyright complaints against the video sharing site YouTube.com But he too complains about Google’s size: “..Google can do that better than anyone and I didn’t have Google dollars,” he said.

(Keep in mind that Justin Uberti, AOL’s top AIM Developer, was recently poached by Google, which adds to the wounds.)

In other notes about Google’s reach:

–Essayist Nick Carr is known for his sensationalism, but he suggests a case for Justice Department intervention on GooTube on antitrust grounds. (Sen. Stevens from Alaska will agree with Carr about the need for action, now that Google owns the “tube.”) Chad Hurley, Carr notes, argues in a recent interview that YouTube enjoys a “natural network effect” that should allow its share to continue to rise strongly.

–Statistics, and damned lies: The data about Google’s market share is unreliable. Google has a 43 percent share of the video market, after acquiring YouTube, Carr says, citing Hitwise. However, Comscore, which says it considers more sources and has more reliable methodology, has got GooTube with only 10 percent market share. Hitwise is now saying that GooTube has almost 60 percent! Yeesh.

–And what does it mean for Limelight, the content delivery network (CDN) that distributed a lot of YouTube video around the world? It just raised $130 million from Goldman Sachs Capital Partners, in part because it was showing so much growth. Limelight had YouTube as a customer, which clearly was helping drive some of that growth. It was placing large numbers of servers around the world to carry the video traffic. Google has its own network so won’t need Limelight (though we’ll have more next week about why this may not be a real problem for Limelight long-term.)

Here is a shotgun of the latest stuff in raging Silicon Valley, leading of course with video:

VideoEgg gets easier — VideoEgg, a site that lets you download software so you can post video on any site, has partnered to make the process easier at key sites. Users at Bebo, Dogster, Hi5, AOL, Current.TV and Tagged can post video content from mobile or other devices to those sites, and VideoEgg’s small browser plug-in that makes it easy to get code for a video and upload it as easily as you can post photos, it says

Zillow.com sets homeowners free, allows them to enhance their home value — You could see this coming. Start-up Zillow infuriated some homeowners and agents by estimating the property values of homes across the nation, and listing them online. Some people felt they were being unfairly treated. Now the site is letting homeowners contribute information about their own homes, listing upgrades, remodeling and other notes (waterfront view, parking, roof composition) — showing ways the homes may be more valuable than simply historic or comparable home prices would indicate. Homeowners can then recalculate their home values, but Zillow insists it will keep showing its existing estimates too.

Fon, the WiFi company backed by Google and Sequoia, releases subsidized router — For $5 you can get a router from Fon that lets you participate in a WiFi scheme where you can let other people hop on to your router for Internet access in return for the right to hop on to theirs when you need it. See the demo here by Fon chief executive Martin Varsavskky, or click on the image, and then push play.

Gore partners with Yahoo on Current TV – A couple of days after we mention Google has hired an “astroturf” lobby firm in Washington that poked fun of politician Al Gore, we find that Gore is suddenly partnering with Google’s competitor, Yahoo, on the Current TV project. This, even though Gore started the project in partnership with Google. The partnership will combine professional and user-generated video clips, and will be the first time Yahoo has included commercials with user-generated content.

The eBay dead-company listings phenom is picking up — We first mentioned the eBay trend here. Several others have since listed, including Madhens, a way for publishers to auction of ad space. Now, here’s San Francisco’s Crispads, which has been listed several days with a starting price of $90,000 but no bidders.

Who Is Jonathan Ive? He’s Apple’s design guru, and has notable advice — With all the go-go tech-happy Web 2.0ers rushing out features, Apple’s Ive has a tip you might be able to use. Here’s Business Weeks’ summary:

The man who, after Jobs, is most responsible for Apple’s amazing ability to dazzle and delight with its famous products, chose instead to talk about process — what he called “the craft of design.” He spoke passionately about his small team and how they work together. He talked about focusing on only what is important and limiting the number of projects. He spoke about having a deep understanding of how a product is made: its materials, its tooling, its purpose. Mostly, he focused on the need to care deeply about the work.

India getting more bubbly by the day – Back in July, we wrote about angel investor Ram Shriram’s view on India’s boom, and how valuations are rising. We remarked on the escalating value being assigned to a high-tech park in India. Well, the value has just doubled again, this time to $20 billion. The Indian state of Haryana is developing a research and education “Nano City,” modeled after Silicon Valley, and it was first billed to cost something like $2 billion. Then we saw some reports inflate this to an unqualified “$10 billion.” Now, apparently there is going to be $20 billion invested. Of course, when you read the reports carefully, there are different definitions being used for these numbers (costs, investments, and so on), but they all seem to refer to how much money is being invested in this area — and it keeps growing. And when you consider it is supposed to generate a fourfold return, that means we’re looking an $80 billion jackpot. It all started with Sabeer Bhatia, co-founder of the Hotmail e-mail service, who had planned to raise $550 million to start the project, modeled on Silicon Valley — without specifying a time frame.

Mr. Cheney picks the “right side” of Menlo Park — We were wondering why Vice President Dick Cheney was visiting with venture firm Sequoia. Turns out, he was raising money for the Republican Party at a reception at the big-name firm. The politics on Sand Hill road are delineated. The other big-name firm, Kleiner Perkins, which is just across the street, is led by John Doerr, and Democrat supporter and loud advocate for clean-tech. Even Vinod Khosla (still has offices at Kleiner, though has officially left the firm), an espouser of Republicanism in the past, is pushing an oil tax.

News site Topix sees growth improve by 24 percent over the past month — If you haven’t seen its time-line news feature, check it out. You can do a search of a term and see a line graph that shows how popular the term was in articles carried over the past year. So for “Hurricane Katrina,” for example, you can see where news spiked, click on that period and review events as they unfolded. It appears to have bolstered Topix’s growth.

Craigslist is rocking — About half of the growth in visits to online classified ads is going to San Francisco online classified site Craiglist, according to comScore Media Metrix. Craiglist is considered by many in Silicon Valley’s tech crowd to be clunky, a homely Web 1.0 site lacking the jazz of newer players, such as Oodle. But it is getting the job done. Web sites featuring classified ads drew 47 percent more unique visitors this July than the same month a year ago, while Craiglist’s visits about doubled, to 13.8 million unique visitors.

Intel’s new laser for chips could speed up communications 1000-fold — Intel’s new research has found a way to create a laser out of hybrid chip materials, and Dean Takahashi of the Merc has the details (registration required).

HP investigations deepen — Now we’re hearing that HP planted software on journalists’ computers, and the NYT is reporting that HP even considered planting moles within journalists’ offices.