Monetizing YouTube is arguably the greatest opportunity on the Web. The same could be said about Facebook, but right now, it’s not even close. YouTube is a video property, Facebook a social networking site. Despite what people say, the big money is in online video, not social networking. In fact, while eMarketer pushed up estimates for online video advertising for 2008 from $1.25B to $1.35B, it scaled back those for social networking sites.
We’re not alone in this assessment, Google CEO Eric Schmidt refers to monetizing YouTube as the holy grail… time will tell how successful YouTube and Google shall be… but clearly: online video remains an untapped goldmine.
While Google paid $1.65B in stock for YouTube, hitherto, it’s failed to recoup any of that investment. In intangible terms, I think YouTube was a smart bet despite all of the drawbacks. After all, YouTube commands 70% market share in streams (with Google Video, Google commands a 75% share!) and 35% of users who consume video in the US. These are dizzying stats, and when you consider that online video is expected to clock in $7.1B by 2012 (According to Forrester), then even if YouTube is not the top grossing video site, it will prove to be a smart bet.
But, the fact remains, with Google doing $17B in revenues, YouTube’s $200M run rate is modest, at best. How can YouTube generate more revenue? Let’s look at some ways:
Sales:
- Create a Better Auction Interface so partners better understand rates Google is selling ads at - see more here.
- Allow for ad networks to sell across numerous content partners, or allow some partners who want to do this (ie. I’d welcome this, frankly). I am not this is worthwhile for ad networks, as a partner, I won’t comment on the terms of our deal, but for purposes of illustration, you can imagine that sharing the proceeds between Google/YouTube, the ad network and the content partner becomes less interesting… honestly, I doubt many content partners would welcome this either, but there is merit to it.
- Encourage partners to create “fake ads” for real products and companies… then feature the leading ones off the main page… Trust me, marketers will take notice and want to pay to carry those, or hire partners to create made for web ads… something that is lacking. If done right, and done in short format, some of these can become pre-rolls… as well.
Partner Content Discovery:
- Remove non partner videos from Related Videos - more here.
Google already allows users to restrict search queries on YouTube (technically the biggest video search engine, after all) to partner videos. This is smart… but why stop there?
- Tag cloud featuring only clips from partner archives.
- Featured partner thumbnail off the Main Page that rotates with every single partner they have.
- Related Provider - promote other Partners that have similar content, categories, metadata, etc. Some partners might not like this, but this is the quintessential link exchange program.
- Promote YouTube videos off Google Search Results page with no Paid Results. Google probably would have balked at this historically… but if online video is the holy grail, why not?
- Promote YouTube videos off Google Images pages. This is a natural fit… since image-based queries have a high correlation with video queries…
Programming and Editorial:
- Launch a Google Portal, heavily promote YouTube partner videos - where I see a major weakness is in lack of programming - see more here.
- Reducing UGC altogther (unlikely, I know) - see more here.
- I’d love to see YouTube commission content and what not, but don’t hold your breath, this is Google after all… though Google did get into content - sort of - with Knol. Which takes us to the last point…
Corporate Structure:
- Spin off YouTube as a separate business (impossible). I don’t think Google will ever really push YouTube - your typical innovator’s dilemma.
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WatchMojo NewsletterOne of the things that strikes me as odd (from a trying to please users perspective, not so much from a technology or business perspective) is Apple CEO’s Steve Jobs’ reluctance to enable flash on the iPhone.
Naturally, with flash being ubiquitous in online video, and the iPhone become a increasingly important piece of the wireless entertainment landscape, it was a matter of time before someone looked at converting flash for the iPhone.
Enter Episodic, who did just that. Thanks to their help, check out WatchMojo.com’s videos here, enjoy and send me feedback. Note the URL http://iphone.episodic.com/watchmojo is available via iPhone only… in a web browser nothing will show up. If getting WatchMojo.com on your wireless device isn’t a reason to swap your current phone for an iPhone, I don’t know what is. Jokes aside, you have to wonder, is Jobs being wise by not enabling flash on the iPhone?
Sometimes VCs say the funniest things:
From SAI:
SAI: What has to happen in the next year or so for Web video to start producing profitable businesses?
Lee: Infrastructure, consumer behaviour and advertisers all have to catch up. Once they do, the economics will be more understandable, and more repeatable. Advertisers will learn what to buy and what not to buy. We are in the third or fourth inning of this thing. If in 5 years video advertising isn’t $3 billion business, I would be pretty surprised.
Canaan Partners‘ Warren Lee, who led the VC firm’s investments in Tremor Media, Motionbox and Associated Content, after previously leading video investments for Comcast Interactive Capital.
Maybe I am off, but Forrester pegged online video ads to be a $7.1B by 2012 - so 4 years from now. If online video ads is a $3B business five years from now, or 2013, we’re in trouble people. The video space has raised $6B after all in the past 2 years… and tack on YouTube’s $1.65B exit and a few smaller deals, that means $8B has gone into chasing the big elephant.
What’s wrong with this picture people? Here’s my biased thought:
SAI: You’ve mentioned your company’s bias toward infrastructure and services over consumer-facing video and content investments. Are there sectors you see reaching profitability first?
Lee: Certain categories will have a shorter time to profitability. Companies like ThePlatform, FeedRoom, Brightcove and Maven Networks, which sell software to businesses and get paid a license fee. I suspect these kinds of companies will be profitable first.
Online advertising isn’t as solid as it should be right now (total online ads in the US represented a $25B industry in 2007) yet videos only clocked in $750M in that year. This year, that figure goes to $1.35B, according to eMarketer… but as I’ve outlined, I think most of that money is being generated by traditional media companies, not any of these new media players… at least not in meaningful ways.
The problem is simple: traditional media will see a cannibalization of total revenues as they get more aggressive with shifting content libraries online, so they won’t be doing that with as much ferociousness and velocity as advertisers would like to see. What’s worst: as Canaan admits in the Q&A, they had a bias against content… so long term, there won’t be enough high quality video content to get advertisers excited about online video opportunities… which in turn means everyone loses, including companies like Brightcove et al. For this reason, I highly doubt Brightcove can see profitability at the end of the tunnel. Brightcove’s clients, in theory, would gladly pay license fees, but if and only if advertising revenue was greater. Right now, it’s just not. That is why companies like Blip.tv are doing great (disclaimer: Blip is a partner of ours).
This all seems simple enough to me… but I’m not a VC, I’m a mortal executive, and in my humble opinion, this miscalculation will lead to the downfall and fatal blow of many of these VC-funded companies who ride the wave of UGC-driven growth in bandwidth but won’t see a corresponding spike in online video advertising revenues to make the growth sustainable.
Data from Diffusion Group, found via TVWeek, via Alley Insider:
Today’s average:
Professional long form video: $40 CPM
Professional short-form: $30 CPM
User-generated video: $15 CPM
Projected for 2013:
Long form: $46 CPM
Short form: $34 CPM
User-gen: $17 CPM
States SAI’s
We’ve heard YouTube is having trouble getting even $15 for overlay ads on the few videos it can actually sell.
All this could change next year if advertisers embrace user-generated video or long form video ad rates go down a bit and become more comparable with TV. Still, these seem like reasonable benchmarks.
Michael is a smart guy, but he’s downright high if he believes that (in his defense, he says “if” and not “when”), and steadfast, Diffusion is plain wrong for basic economic reasons, mainly:
There is NO way that UGC will fetch rates anywhere near what Diffusion is projecting… for one, advertisers won’t go near it and won’t touch it with a ten-foot pole… Most importantly, the sheer supply of UGC is 100 times larger than that of short form professional content, so the price for that will be much higher than simply 2 times UGC.
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