If you look at YouTube’s numbers, one thing is clear: It completely dominates online video. YouTube accounts for 37 percent of all videos watched on the Internet and attracts about half of the audience, according to comScore. (And if you add in Google Video, that brings the total to 38 percent of videos watched). The No. 2 player, Fox Interactive Media (i.e., MySpace), accounts for only 4.2 percent of videos watched. And as the Forbes chart above shows, YouTube is still growing at a faster pace in terms of traffic than Google overall.
Yet when it comes to turning that market dominance into dollars, YouTube is holding back. Forbes estimates that YouTube will make $200 million in revenues this year, and $350 million next year. Although it never explains how it gets to those numbers, and they are higher than some Wall Street estimates, they are not unreasonable. (The home page alone is $175,000 a day, plus a commitment to buy $50,000 in Google ads elsewhere—that’s about $80 million a year right there. Plus each branded YouTube channel goes for $200,000. If someone from Forbes can lay out the math in comments, though, that would be helpful). Google does not break out YouTube’s revenues because, even at $200 million, it would be less than one percent of the company’s total.
A $200 million business going to $350 million is nothing to sneeze at. But if you believe eMarketer’s estimate that online video advertising will reach $1.35 billion this year, that would mean that YouTube’s share of video advertising dollars will only be 15 percent (less than half of its share of videos watched).
This gap could mean one of two things. Either YouTube is unable to make money from a large portion of its user-generated video inventory (advertisers want to stick to the home page and the safety of their own channels). Or YouTube just hasn’t turned on the money-gushing hose yet. It has built an increasingly unassailable market dominance under the shelter of Google’s wing without the need to maximize revenues. That attitude, though, is obviously changing, with YouTube now pushing AdSense for video and spreading that wealth with more content partners.
Which one is it?
Erick, nice writeup, and great statistics. Yes I think they’re building market dominance, but not at the expense of building a business. It will be even more valuable and easier to sell ad space if they own 55%-70%.
It’s amazing to see how quickly the word “YouTube” looks like an equivalent to the phenomenon of “wathing videos online”
Mmmhhh…
My guess would be neither of your options, but that the eMarketer is (yet) grossly over-estimated, and that YouTube currently represents much more than 15% of all online video advertising.
This is all a game of “estimates” in a nascent market: I would be glad to see more supporting facts and methodology from Forbes, but also from eMarketer.
Otherwise, we’re comparing dreamed apples to virtual pears.
nobody in their right mind would hold back making revenue if it were available.
Nice post.
It is amazing how quickly YouTube has taken over Internet video. Sports, politics, comedy–they own it all.
They deserve it. They seem to constantly be seeking to improve it. We use it to put our vehicles on there directly and to place video on our own web site. It is a great tool.
The big question is what are the costs? If they are serving 40% of online videos, they have to be significant — probably much more than $200 MM. My guess is that this is a solidly unprofitable business, but I have little doubt that Google could change that if they so choose. If GOOG did start to get aggressive with ads, user engagement would surely be impacted. I’m they’ve run the numbers and have decided to hold off until they fully cement their leadership.
Brilliant strategy. Dominance is name of the game in the winner-takes-all Internet market.
Great piece, Erick. By simply building dominance, Google is destroying business opportunities for others, and that’s a fun strategy, if you can afford it. Google is a company that invests in its users instead of sucking everything they can from them, and that confounds conventional capitalism. Socalmonkey, Google turns down a fortune every day by refusing to put ads on its home page.
In reality, it is still early days for the video advertising market. Google (along with everyone else) hasn’t figured out how to monetize in a meaningful way without scaring off viewers. There is a ton of money to be made, and once the equation is solved, YouTube is very well positioned. On market share, I would guess that the estimates are overblown, as is typical.
I agree with Wayne and Terry. This strategy is cannibalistic in that their taking traffic away from Google Video but it dominates their category and doesn’t allow for competitors to get close. They are building brand loyalty first and they’re not exactly hurting for money.
From what I hear in the market, YouTube is already doing business in the $150M per year range, which by all accounts is a great start for a company that was making zero revenues when Google acquired it. BTW, there is a rumor swirling that YouTube’s Head of Monetization, Shashi Seth, is leaving YouTube/Google. He was one of the people sent by Google to figure out YouTube’s business model right after the acquisition. If the $150M number is true, by all accounts he did an amazing job. Wonder if he is also following in the footsteps of other Google executives Sheryl Sandberg and Elliot Schrage to join Facebook and help them figure out their business strategy.
Google knew from the begining that Youtube wasn’t a revenue site. They wanted just for the market share.
They should start with youtube HD
because their quality is crap atm
Well first views are growing on Youtube because they changed what counts as a view to generate more… views (now, a launched video is a view): They aligned with the competition. If they had not made that move, maybe we would have seen a significant dip in the 2007 views.
Then, Youtube doesn’t really cater to video pros. You need to send a request by email to be in the partner program, their player customization options are lame, and even their API is a pain in the butt. And look at the branded pages: the video views there are so low, I’m pretty sure they don’t really charge $200,000 for that.
I’m an avid Youtube user. youtube is probably the best platform to socialize around videos. But let’s face it, people watch home-made movies on Youtube, and that is not a revenue-generator.
Question: Youtube launched the Insight feature: Why do you think we get all kinds of analytics, but nothing about video actions, specifically how much of the video is seen?
@MyMesh, @Terry Heaton, and half of the other commenters are quite right. It all goes into the funnel and the end result is a bigger kind of dominance and squeezing out rivals. A luxury of scale very few real businesses have.
Actually, YouTube’s share of online video advertising is much lower than Erick estimated, for two reasons:
First and foremost, almost none of YouTube’s revenues are from ‘video advertising’ as it’s defined by the data you’re citing — it’s basically all GIF and Flash banners, and some AdSense ads. Most market research firms would only count in-stream ads, in-video overlay ads and video banners in their ‘video advertising’ data.
Second, some (not much, but some) of YouTube’s ad revenues come from outside the US, so you’d have to remove those non-US revenues before comparing to the US-only market data you’re citing.
YouTube has effectively declined to participate in the video advertising business. It’s a shame; I know a lot of advertisers who’d pay good money to run ads there. If they ever find a way to give advertisers the ads they want, while restricting ad length and ad frequency to the point users don’t rebel (as many other sites now have), it’ll be a good day for both Google and advertisers.
huh?
I don’t think they do it on purpose - it’s rather a matter of fact. The other thing is that they still don’t have sophisticated business model for what they do. Their ad approach is sooo web1.5 - they could learn a lot from competition here. Plus their product is actually inferior to competition in many ways (commenting in videos for example).
It already clear that the real money are in web-search and local search and not in display ads and not even in video ads (though these would have a value in the future). Google doesn’t have to get any profit from any of the projects (youtube, maps, gmail, blogger etc.) they are all needed to protect the search stronghold. Google could start adding ads at the end of the videos - that won’t bother visitors, but youtube would then have less sharing taking place.
My guess is that Google is being very careful in how it monetizes content on Youtube to avoid a situation where it knocks itself even further from a DMCA safeharbor by directly monetizing other party’s copyrighted content.
Anyone ever think that the audience hates ads? They have never had traditional pre rolls because they drive people away. Most youtube viewers expect to see their content immediately because it has been that way since day 1. Throw a ford pre roll in there and they want to go to another video or site all together. Most of the content is user generated. The risk of being in front of a video with questionable content is often too much for advertisers as well. Most pre roll inventory does not fit with the content. Sure, game videos of halo are prime for video game ads, but what about someone getting kicked in the face? I think the audience is simply not willing to watch traditional pre-roll advertising.
As some of the other folks in this comment thread have alluded to, Google is in the enviable position of not needing each of its properties to be profitable standalone, because each one is just part of the Giant Funnel of market dominance and inventory. I suspect that Gmail isn’t profitable standalone either, but it creates lots of inventory that feeds into The Giant Monster Engine that will Take Over the Earth.
OK, so where do I start from? May be from the title….
1) Building market dominance doesn’t come at the expense of “building a business”, it’s in fact one of the preferred ways of doing so. If you are talking about making revenue, then go back and change the title.
2)Just because Youtube is a video network, doesn’t mean that any ad they show, be it banners, text ads etc, can be called “video advertising”.
3) Why did it take our experts in Techcrunch 2 years to figure this out. This strategy has been obvious since the day Google bought youtube. They never had a perfect monetization model to start with, but their strategy was “by the time we figure out how to monetize this, we would already have the biggest video network”
4) And why single out Youtube. Most of the social networks try to build market dominance first. None of them have yet figured out an optimized advertising model.
Clearly. I’ve noticed that the quality of streaming has declined and that competition has moved in, they probably have no choice.
Ryan
lessons in brevity: http://www.mofata.com
Online video advertising dollars do not equal to dollars spent on advertising on online video websites. The former prolly include the cost of making the videos and the cost of publishing the video (on any site, not just your fav. video site).
So, i’m not surprised to see youtube’s revenue fairing poorly in that comparison, because the comparison is wrong.
if you are google, why would you ever monetize youtube? it’s not in their interest to create a market that could pull money out of their adwords market.
as long as they keep giving away youtube, no competitor would survive, and their adwords product is safe.
microsft did this with windows media player and held real at bay for years (until finally the ipod thing happened).
YouTube is mostly a loss leader for Google, but they are beginning to offset the costs bit by bit by improving the service and beginning the online advertising. It may never be a profitable site, but so long as it continues to integrate Google tech and accounts, it’ll continue to gather users, the spin off of which may be enough to help the company out. They may actually be paying for this in a manner that’s not readily visible.
YT made about 40M in 2007.
the real issue is that most of the views are UGC of unknown pedigree. cant put high priced brand ads on them without sullying brand or running foul of DMCA.
the pro stuff is either available elsewhere, or is boring stuff that nobody wants to watch. compare the number of views on the “promoted videos” on the home page with the UGC videos below it. promoted videos is licensed content with typically a few thousand views, while the UGC videos have few hundred thousand views.
YouTube ads will ultimately fail because unlike AdWords ads, they are distracting. I outline more reasons on my blog -> http://www.russellheimlich.com.....tely-fail/
and also ways that they could make YouTube into a cash machine -> http://www.russellheimlich.com.....r-adsense/
the marching orders are to grow share, not rev. the question is at what point will this change and how will the new inventory impact online video cpms (and formats)…
I agree with #9 on this. Google needs to *invent* the ad format which will really work on video clips on the Internet. Then the game is won.
Youtube, is becoming an internet super power. and who’s to stop them?
They’re knocking rivals out of the way with ease, and they’re steaming it.
I’m not a huge Youtube person, but i say, go youtube!
It’s interesting to note that YouTube and MySpace are running huge volumes of crap UGC on their sites. MSN, Yahoo and other sites should be getting higher CPMs for “linear” video ads that run before and between content. And, frankly they’re selling what agencies have to run today.
I wouldn’t be surprised if Yahoo was making more money than YT on video today.
Its not the revenues for YouTube that satisfies Google, its the fact that they own the biggest Online Video Library in the world.
YouTube’s Video Content is going to play a major role in Google’s Universal Search Engine, whether its amateur or professional quality.
Maybe if Google also incorporated a YouTube Tab on their own Search Homepage, they might get better revenues from Sponsored Links there. After all users are more acceptable to seeing Sponsored Ads on Google, then on YouTube.
Even Yahoo should promote Flickr as one of their main Search Tabs. Why have such great online assets hidden away from your core Search Engine.
Try contacting anyone at YouTube to discuss advertising. You will not get a return call. We tried to place spots with them last year and did not even get a response. They have no idea to monetize their system. Not sure if it b/c Google Video is behind, or if they are trying to integrate a super Adwords program into to have a more robust placement system. Plus isn’t the DoubleClick deal suppose to give them a backbone to build this on?
Rather than the choices given in the survey, it is more likely that Forbe’s estimate of YouTube’s ad revenues is low and eMarketer’s estimate of market size is high.
Another reason Google hasn’t been in too much of a hurry to monetize YouTube (even if they could), is because they’ve overall been performing well as a stock, in spite of the recent fluctuations.
When their growth slows down, there’ll be tremendous pressure from shareholders to monetize the video site. By law, a public company must do what’s the best for its shareholders first - in the U.S.
This is one of the reasons there’s been so much pressure for Time Warner to divest of AOL from its shareholders, as it’s seen as holding back the stock.
One of the reasons for the article in Forbes is because the writers know YouTube could get in trouble if the major media content companies don’t deal with them, as that’s the primary means of monetizing video.
If the companies don’t make deals, YouTube may hold a lot of market share, but it would be irrelevant in the long term, as other sites like Hulu, which people really like, make all the online video money.
For some to say that Google is just holding back and building market share is only partly true, as well as saying it should be a site used as a loss leader. A loss leader to what? No one is going to use Google search because they hear about YouTube. People are already doing that.
The truth is Google has no idea how to make money off it, other than through professional content. At this time the overall poor relationship with traditional media companies is probably the major reason holding them back.
Even assuming the numbers thrown out be Forbes are somewhat accurate, when taking into account expenses, there probably isn’t much, if any, profit.
I think they are creating market dominance. The results are uneven.
Hi,
I think Tech./Crunch people have a short memory.
As @31 was mentioning, if google come up with a workable ad-product…. the only problem is that as an enterprise google would still be a middle-ranking search site at best, probably taken over by the other top-3 if it hadn’t stolen the idea from Bill Gross of PPC advertising, and then buying Applied Semantics.
Yahoo and Aol simply have more breadth and depth of content.
To date they have not yet demonstrated any actual product, on the other they did blimming well buy Neven Vision (which was on my fantasy M & A list for years) and together with other technology they probably already have the ideas if not tech. in place to eventually execute.
As a final note, people make this point about inappropriate content next to quality adverts, but that forgets 2 other things: no one seems to give a damn when the same happens with good adverts around crap network programming, and two, the whole point of the internet is accessibility of all to all by all -combine that with something like Co.’s XXXXXXXXXX and TXXXXXXX and you have a ready made solution!!!
Yours kindly,
Shakir Razak
Apple’s iTune sells music and video. So, Google’s YouTube, with so many visitors, make it become a real market site of selling Video contents and subscriptions.
Youtube should display ads before the start of every video. Then the revenues will BOOST like anything.
37% of the videos watched. Amazing Numbers!
But the YouTube phenomenon will grow faster this year.
Someone will make a lot of money in this space and if I had to bet on a company, I’d bet on Youtube.
Interesting analysis.
YouTube is just like Google - take time to build market share, then figure out monetization and go to town.
Google never started gushing money until years later when they perfected PPC that Overture had invented.
Google issued a statement in a 1998 paper they published about Google technology saying that ad-funded search engines are “inherently biased to the advertisers…the better the search engine is, the fewer advertisements will be needed for the consumer to find what they want.
Read my analysis at http://mullingsbrothers.blogsp.....-user.html
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To make money with YouTube, this is what Google has to do…
On the most viewed clips (clips with, let say, already 1000 views) (doesn’t matter who posted them) YouTube automatically implements a 5 seconds overlay ad that appears over the player and blocks out (darkens) everything else. (It gives a bit of time for the clip to load in the background as well).
This overlay is a 5 seconds spot (can’t be longer than that and it doesn’t link to a company website if you click on it. It’s like a really, really short TV spot. It can be a still picture for outfits with very little budgets…)
Now, people don’t like ads… but they like GAMES and they like to COLLECT stuff.
Each overlay ad is a mini 5 seconds GAME. You have three colored dots on the overlay. The viewer clicks on ONE of them. One is a winner, two are duds. If you’re lucky to pick the winner (you only have one chance) during the 5 secs, you receive a TOKEN that is automatically added to your YouTube account. (It encourages you to stay registered…)
Now, you COLLECT these tokens. If you win a certain number of similar tokens, you can EXCHANGE them against full-length HD Hollywood Films or TV shows on YouTube. The fun part could be that you have different categorires of tokens. (Some would be for specific film genres or just for one TV show and some could be really hard to find, worth maybe ten tokens, etc.) (Tokens are generated randomly by the system.)
Now, you have the problem of guys posting shows and seeing Google make money off their film. Well, they need to be rewarded too. For a succesful posting (ie lots of viewers) they also receive TOKENS… to be exchanged to watch high-quality HD movies or TV shows.
Now, these HD movies or TV shows in the “HD Theatre section of YouTube” can also be sponsored with a longer lead-in spot… That’s even more money for Google.
Now, we have the problem of big brand names not wanting to have their spots stuck on “Jimmy and his weird cat”… Well, they could “control” where their 5 Secs. spots go by teaming with content suppliers through YouTube. Example, a Coca-Cola campaign with Viacom clips… Viacom takes all the succesful shows they own like, for example, “Spongebob”. They cut out little “gems” (two to three minute clips) and they post them on YouTube to watch for free… Viacom via Google sell their 5 second spots to Coca-cola. Everybody is happy. The viewer, who enjoys these mini-clips, can even link to the full episode of Spongebob on YouTube. He can pay by redeeming TOKENS or he can pay with real money for the full episode or combine both. (It’s all streaming anyway! It’s like TV a la carte.)
Now, what about the “Jim and his weird cat” clips. Who pays for these 5 secs ads? Well, it’s like Google’s Adsense, it’s small outfits who purchase so many spots. You can buy a thousand spots or ten thousand spots to be randomly placed on clips or based on the clip’s TAGS and on the clip’s level of viewership. The outfit supplies the spot or the still and pays Google directly up front.
A system like this is not that difficult to implement. (If they’re real smart, they can have it work just the same on imbedded videos on other sites) Anyway, it’s fun for all involved and all get something out of it. Everybody is a winner especially Google who makes tons of money from the big guys but also… most importantly…from the long, long tail of all the little guys. Viewers are hooked to YouTube forever! Even if they’re just there to click on ads and forget about the clips… the most important is done. Money!
Here, you have it.
Twowan,
(If Google wants more ideas like this one, they can contact me. I’m the guy behind laboratoryfilms.com)