From the very moment Google's $1.65 Billion purchase of YouTube was announced three years ago, many of us in the tech space have been curious to see how they'd make money from the video sharing site. Google's investors have undoubtedly been a bit more pointed in their inquiries, especially in the face of reports that YouTube costs the search giant over $1-2 Million a day just to operate.
A new piece in the San Francisco Chronicle examines Google's possible plans for finally making YouTube a profitable venture. Most of the article is conjecture—which I'm a fan of—but starts with a quote from Patrick Pichette, Google's Chief Financial Officer. Pichette said, "In the not-too-distant future, we actually see a very profitable and good business. We are very pleased with the trajectory.” Of course, that might be optimism speaking–a bit like an NFL coach saying he still likes his team's chances after a game when the starting quarterback breaks his leg.
Now, even though I may not deem that to be as "juicy" a quote as the Chronicle seems to think, it's still a strong statement for a CFO to make, particularly when you remember the investors he's working for. They might not appreciate unnecessary optimism in projections like this, so he's not likely to infuse his expectations with unfounded hope.
In addition to testing nearly every conceivable form of advertising on its videos (banner ads, promoted videos, pre-and-post ads, and the Google standard search ads), YouTube has also been lining up major content providers such as Walt Disney and Time Warner. High visibility content, such as full films and television shows from major studios, would definitely bring the ability for YouTube to charge more money to advertisers.
A lot of the experimental advertising methods YouTube has played around with have always been on the table, but were considered a risk not worth taking—who wants to risk offending the very audience that made you a $1.65 Billion investment in the first place? But the economic recession, mixed with louder Google investors, have forced YouTube's hand.
It seems to be paying off.
As The Chronicle notes, having so many different methods for advertisers is part of the reason they were even able to land the major content deals (which brought shows like Lost or Desperate Housewives to YouTube).
YouTube comes pretty late to the game with their major content deals. Hulu.com is already way out in front in that arena, both in terms of popularity and depth of their content library.
However, YouTube is still the undisputed king of user-generated video. No one can boast the volume of content uploaders and viewers that they have. And now they're learning how to tap into user-generated content for advertising as well, using their copyright notification system—most notably used by Chris Brown's record label to make a huge profit from the overnight success of the JK Wedding Dance video that featured Brown's song "Forever.” Now, instead of just issuing takedown notices, copyright owners can find instances when users have included material without permission and take it to the bank.
For now, most of what you hear about YouTube's profitability plans is still just educated guessing. But it's awfully fun to make those guesses. As I've said since the day they bought YouTube, if any company can figure out a way to make YouTube profitable, it's Google… and when they do, it'll not only be profitable, it'll be meteorically profitable.