Google drew sneers when it paid $1.65 billion for YouTube in November 2006. Only 63 people worked at this little video distributor in San Bruno, Calif. It had minimal revenue but more clips, bigger buzz and a better user experience than Google.
Sneer no more. YouTube is bigger than ever. The Google people are taking over the place, and they’ve found the buttons on the cash register — vindication for YouTube’s original crew, especially founders Chad Hurley and Steve Chen. Or, rather, partial vindication, since the original managers have been largely replaced by Google apparatchiks.
The three-year-old YouTube site probably crossed a billion views per day worldwide a few months ago, exceeding even the lofty expectations by Google when it made the acquisition. (YouTube will only confirm it does hundreds of millions of views per day.) Thirty-eight percent of the video streamed on the Web now comes from YouTube, according to ComScore. No other player has more than 4%. Google owns the biggest television station on the planet. It will upload 600 years’ worth of video this year.
“A studio declining to do business with YouTube would be like a cereal maker not dealing with Wal-Mart,” says Bobby Tulsiani, a JupiterResearch analyst.
Google doesn’t share numbers, but it appears that YouTube will generate $200 million this year and maybe $350 million the next. It’s a mere 1% of Google’s sales, but up from a minuscule amount last year. In YouTube’s early days the main objective was to get eyeballs. Now it’s to get ads. Web video ad spending will climb from $775 million last year to $1.35 billion this year, estimates Emarketer.
An ad on the YouTube home page, something Chad Hurley experimented with before Google bought YouTube, now costs $175,000 a day, plus a commitment to spend $50,000 more in ads on Google or YouTube.
Pricing for display advertising next to user-generated content has collapsed. Rates on sites such as Facebook, MySpace and YouTube have fallen 45% since February, to 18 cents per thousand page views, according to digital analytics outfit PubMatic. Most of the momentum now, says Chris B. Allen, director of video innovation at media buyer Starcom, is for ads within full episodes run on the TV networks’ sites, such as NBC and Fox’s Hulu, ABC.com and CBS.com. It’s a format that advertisers understand.
That’s why YouTube is pushing studios and networks for professionally produced content like movie trailers and TV clips. It also offers them branded channels, with customized backgrounds and well-selected video. Hundreds of channels are sold to advertisers such as Nestlé, Hanes, 3M, Procter & Gamble and Hewlett-Packard. These go for $200,000 apiece. Last December YouTube opened the program up to individuals, picking up a few thousand more places to run ads. MySpaceTV is building a similar branded arena where professionals can build channels with ads tucked in before, during or after their films roll.
YouTube has done a lot of experimenting with ad formats and found some surprises. Pre-roll video ads prior to the main video cause the audience to click away up to 70% of the time. Better: short banners that pop up from the bottom of the video window. The NBA channel runs rollover Patrón tequila ads that turn into a video how-to for making margaritas. “It’s finally a way that advertisers can leverage the massive amount of video streams without the fear of being next to the soccer kid getting kicked in the nuts,” says Davis Brewer, lead strategist for emerging channels for media planning firm Spark Communications. People click on those rollover ads 8 times as often as on standard display ads next to the video. The rollover ads are most effective if they appear 15 seconds into the video. Any earlier and people get turned off. When the rollover is run in tandem with a display ad next to the video box, the chance of someone clicking can be 46 times as good.
In March Google rolled out an analytic tool for users and advertisers called Insight that shows a video’s daily traffic and demographic stats inside an interactive window copied from Google’s stock quote pages. A dynamic map shows creators where their work is popular over time, so a movie studio planning a film opening can decide where to deploy its marketing budget. A rock band can plan its next tour route based on where the fans of its videos live. “They can’t believe the data we have,” says Hoffner.