Google on its second quarter earnings call went out of its way to say it was pleased with YouTube's "trajectory" and indicated that the company would make money on the video site. The motive: Combat a bevy of worries about YouTube's profit potential.
YouTube monetization has become a hot issue among analysts following Google's second quarter earnings report. Some like Bernstein's Jeffrey Lindsay and Piper Jaffray's Gene Munster have talked YouTube implementing fees for uploads and all sorts of models. Fast Company call these fees a big awkward problem. Finding the business model for YouTube has become a bit of a parlor game these days. Munster reckons that YouTube will have $323 million in gross revenue in 2009, but that costs outstrip revenue. Munster writes:
"We estimate YouTube will generate $323 million in gross revenue for 2009, up from $111 million in 2008. However, expenses for site upkeep and streaming are likely to total more than the gross revenue generated. We believe YouTube could develop a hybrid model where it charges a portion of users to upload their videos. YouTube could develop technology based on its current Video Identification technology to protect copyrights to determine whether advertising could be sold against the video to be uploaded. If the algorithm deems Google could not monetize the video through advertising, it could require the user to pay a nominal fee to upload the video to the site, which could be based on the average lifetime cost of streaming for a given video."
Unfortunately, Google didn't exact deliver a lot of detail about YouTube's model or how close it was to breaking even, but the company did move to counter the idea that the video site is a money pit. Google CEO Eric Schmidt said on the earnings call (Techmeme):
"YouTube is now on a trajectory that we are very pleased with and we are helping marketers and agencies create great ads easily."
The main takeaways:
- YouTube monetized views tripled in the past year.
- Featured partner videos are prominently featured.
- The YouTube home page is becoming desirable to advertisers.
- Google is "getting excited" about pre-roll ads.
- And there are more display ads on YouTube.
Google CFO Patrick Pichette said on a follow-up analyst call that the company's YouTube comments were directed toward reports about "massive cost and no business models and all of the kind of negative press that we've read a lot about."
Just don't expect Google to cough up any real economics about YouTube. Pichette said:
"We don’t give the economics of YouTube. What I can tell you is that we are really pleased with the trajectory of YouTube. We are really pleased both in terms of its revenue growth, which is really material to YouTube and in the not long, too long distance future, we actually see a very profitable and good business for us."
So why dominate a conference call with chatter about YouTube, a rounding error to Google?
"We just wanted to kind of reaffirm to the Street that this is a very credible business model and it's one that's got trajectory," he added.
For now the YouTube model features a lot of experimentation. Here's what Jonathan Rosenberg, senior vice president of product management, said:
"It's taken us time to kind of triangulate towards what works, and I think some of the things that we have now are still in pretty nascent stages. If you look at the home page it's basically big brand display ads. You know, search can be good for promoting videos, kind of similar to maybe what AdWords does for Google. But if you look at where the big inventory is, the massive users are in more the watch pages.
So that's what we're sort of trying to figure out. You know, is it overlays that are going to work? Is it the in-stream stuff? I think we're still testing all of these things and the answer's going to be different for the different areas on the site that the user's on."
Download: YouTube’s video ID system: Is 75 percent accuracy good enough? Video ID system cost benefit and revenue calculators.