Thursday, April 17, 2008

The Stats Are In. YouTube Really Is A Turd

I have said it before. Commenters over at CenterNetworks said I was crazy. They extolled the virtues of the market leading YouTube. But the numbers don't lie. A year and a half later, Google can only muster approximately $1 CPMs from advertising on YouTube.

This is stunning.

Most advertising on YouTube is not monetizeable so this CPM is for the really good stuff! So with all of Google's market power, this is the best that could be done.

This suggests two things:
  • There is absolutely no market value at all to user generated video. Zero. None. Nada. Actually there is a market value, but its negative.
  • The only company in the world that might have had a chance to make money with YouTube can't, and so the 1.5 Billion dollar price Google paid for YouTube was an enormous overpayment. If anyone else had gotten their hands on it they would have shut it down by now.

It also raises the question, will Google just continue to run YouTube as a community charity? How long can this continue? Growth *will* flatten at Google at some point. That point may be now but none of us is quite sure. But in any case it will come at some point. And when that day comes, the chickens really may come home to roost.

Google will have to decide if they can withstand the market ire generated by shutting down or curtailing YouTube in some way, or if they can withstand subsidizing most of the world's video consumption indefinitely. I'm really not a short term thinker. But I just can't see a way to make user generated video worth anything to anybody in the near term. This usually wouldn't be a problem but in the case of video, waiting for the long term is really expensive.

Then again, perhaps Google's proprietary network and ISP transit agreements give them a low enough cost basis to uniquely position them to subsidize the world's video consumption without getting killed. I'd sure love to get some of that Google charity directly though!

31 comments:

  1. I believe Twitter is going to have the same problem if they ever go to ads to monetize all that traffic. I'm not searching for information on Twitter. If someone I'm following talks about going to Hawaii on vacation and Orbitz pushes an ad to me talking about Hawaii vacations thats going to annoy the hell out of me. Even if I wasn't annoyed I'm not clicking on an ad in Twitter. I've never clicked on an ad in Youtube, Slideshare, Facebook or any other user generated content site.

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  2. The market doesn't lie. Things that are uneconomic to produce won't get produced. Will Google's deep pockets last forever? Is their cost basis low enough for YouTube to survive indefinitely? Is there some new monetization method in the wings to prop it up to profitability (pay to post?)? If you love user generated video, you'd better hope so.

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  3. I think advertisers expect too much out of online advertising. It's ridiculous to expect average users to actually click on an ad.
    Advertisers need to come up with better ads, similar to what they'd put in a magazine or on a TV prime time slot. I hate to say it, but sites like myspace and gamespy have this nailed down with the movie and game promotions they do.

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  4. Well, Google doesn't need for every single one of its departments to be profitable by itself. The vast majority probably aren't - is iGoogle profitable? Gmail? Google News? I believe most aren't.

    What the departments _do_ need to do is contribute to overall Google profitability. This most of them do, in various ways: some supply lots of useful data to mine, which ends up improving search (Gmail and others), others may lead their users to get used to Google UIs and hence use more Google products (Google News, etc.), and others simply tie in well with Google search, giving the user a better overall experience and less reason to leave the Google ecosystem (Google Bookmarks, etc.).

    So, YouTube isn't directly profitable, but it's very useful in other ways, most obviously that it's a great source of information for what people like. Marketers kill for that kind of data. It's hard to quantify how much money Google makes off of YouTube, but given the richness of the data, it might be quite a lot.

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  5. YouTube is currently just in release candidate mode. If Google can talk major media providers into hosting their content for them, content value will go up and ad revenue will follow.

    No matter what Google originally thought, and how YouTube was orginally pitched, I think Google is understanding that social generated content is a fairly worthless ad vehicle. The lemonade is that the platform is tested and works, and worthy of expensive content distribution.

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  6. The correct phrase is "raises the question" not "begs the question."

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  7. I think that Flickr has a model that is worth looking at: a small fee to have your video hosted and organized online.

    Maybe the fee wouldn't be as small as Flickr's $20/year price, but it would allow the small minority of successful videographers to subsidize those less talented (who have a "free" account, perhaps).

    The experienceed folk get a platform that will give them exposure and an audience that they can worry about monetizing on their own.

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  8. Pretty much everything I was going to say was said by Kripken. As a huge megacorp Google will have profitable offerings and unprofitable ones.

    As an independent business we'd probably see YouTube having some financial difficulties right now. Google can afford to continue YouTube at a loss for a few years while the Internet video becomes a more full-featured service.

    YouTube will make a great place to introduce a TriplePlay for advertisers (your companies ads on youtube, AdWords and sponsored results). If Google were to offer packages like this with all the consumer metric information consolidated into one report it would be much more valuable to the advertisers.

    Also, Google isn't pushing ads down the throats of consumers like the competing video services (whose names escape me at the moment) so the possible CPM of those ads is still unknown.

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  9. Web 1.0: They make the content, they make the money.

    Web 2.0: You make the content, they make the money.

    Web 3.0: Your content didn't make any money because it was stupid and no one was interested, so the service gets taken off-line and they go back to making the content (and the money).

    Google didn't need to pay 1.5 billion dollars to find out they could make money by letting people download TV shows. I could have told them that two years ago.

    Harlan Ellison once said that the thing about the internet is that anyone can put up what ever they want. That is the bad thing. Most of it is junk. Web 2.0/user generated content was a joke from the start.

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  10. here's the digg reel link

    http://digg.com/television/The_Digg_Reel_The_Year_of_the_Rick_Roll?OTC-ig

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  11. Also realize that if they were so inclined, they could make it so that every video has a 5 second advertisement in the beginning. Or something along those lines.

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  12. Skip on over to Digg Reel; and get the very worst/best of Digg. You tell me. Seems to be this new feature of Digg w/ a way too hip host with some name or other and all the right gear. Truly juvenile and completely insulting to anyone over the age of 10. Here's the link:

    http://digg.com/television/The_Digg_Reel_The_Year_of_the_Rick_Roll?OT

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  13. ahhhh.....sorry....forgot to mention digg reel is the very best of youtube....i guess that's kind of important to the comment

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  14. Perhaps YouTube wouldn't be in this situation if the site weren't run by cowards hitting the PANIC button every time someone files a fraudulent copyright infringment notice.

    YouTube has zero respect and understanding for fair use. Want to review a video game or a movie? Nope! It's covered by fair use, but YouTube has a strict shoot first and ask questions NEVER policy!

    A friend of mine almost got banned after ESPN filed a fraudulent copyright notice against him for his negative review of a baseball game for the Super Nintendo Entertainment System. You heard me. Funny how ESPN targeted HIM, but thousands of videos on the site that have been up for two years still remain.

    Are you just sitting in front of a webcam and imitating Eric Cartman? Oh my, prepare to be banned (another true story).

    I certainly hope YouTube DOES go under and we move on to a better site with a GOOD WEBSITE DESIGN, NON-SHIT VIDEO COMPRESSION, and an ADMINISTRATION THAT RESPECTS FAIR USE

    The site is the most popular, but it is far from the best. It needs to be replaced immediately, much like Myspace.

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  15. Is it just me or is Google one large over priced search engine flailing away trying to make other mud stick on the wall but failing?
    why does the stock market love google so? If you look at their model with cold hard business eyes they are making a lot of mistakes behind their 'god-like' media image.lots of clever people hired and catered for does not = success, it actually = cash burn, abeit they do have a good ad revenue stream, this in itself is likely to be erroded over time. The search engine is good but could be replaced, remember how big AOL were? Google will be remebered as a 'relic' of our times at some point in the distant future i have little doubt . You cannot break certain basic rules in business, you cannot grow without control or chaos reigns, i belive the google model isn't as stable as some say.

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  16. I don't think an inability to monetize traffic suggests that the site isn't valuable. Admittedly there is an assload of garbage on YouTube, and if one were to look at traffic figures I'd guess that it's not just an 80/20 rule, but more like a 95/5 rule. The vast majority of stupid cell phone videos and that type of thing *is* pretty useless.

    I think the problem is the model. CPM/CPC doesn't work so well for banners (or text ads) sitting next to videos. I think it's a matter of finding the right method to monetize the site that doesn't push users away, and that's why they are moving so slowly.

    And this will have to go both ways - I think Google/YouTube have some work to do on making the ads more valuable, and I think advertisers have some work to do insofar as the method(s) they use to measure success. There's more to it than clickthroughs or some other short-term measurement device, otherwise all outdoor/print/tv/etc ads would be worthless. Online marketers are soemtimes too deep in the data IMO.

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  17. Google didn't purchase YouTube only for the potential of making a profit... if you followed the industry, you would know that Google had a huge legal motive in buying YouTube to guard itself from Viacom's pending lawsuit which YouTube could have never fended off itself, and thus would have set a precedence in the whole copyright/online video game.

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  18. YouTube is currently just in release candidate mode.

    If a site is in beta for three years and is one of the top 10 websites on the Internet, it is no longer a beta.

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  19. Um......

    What if they added some peer to peer distribution to cut costs?

    That would make it nearly free to operate.

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  20. WAIT...Lemme guess..... YOU WORK FOR MICROSOFT, RIGHT?

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  21. You assume that the only way to monetize Youtube is via advertisements directly on Youtube...

    Google has a lot of opportunities, including access to incredible volumes of user-data.

    Every time you visit Youtube, they know where you were referred from, what you search for and watch there, and in some cases where you go after. That information is incredibly useful in targeting advertisements to you in the future.

    When you search Google for someone's name, and notice that an advertisement for Wii Guitars show up after you spent a few hours watching best-of Guitar Hero videos on Youtube, you will realize the brilliance of this purchase.

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  22. Maybe their costs are below $1CPM. It is user generated after all.

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  23. And this is why centralized, monitized network services are completely fucking asinine nonsense - the intersection of greed, powerlust, and stupidity.

    1 - *ALL* services should originate at the user's system level

    2 - Interoperable, free, open standards implemented AT THE USER'S SYSTEM can provide all the existing network services without need for monitization

    Read more at my blog, chaosmotor.com

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  24. "When you search Google for someone's name, and notice that an advertisement for Wii Guitars show up after you spent a few hours watching best-of Guitar Hero videos on Youtube, you will realize the brilliance of this purchase."

    ..or they could just show the ads when someone is actually looking for wii guitars.

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  25. > Web 1.0: They make the content, they make the money.

    > Web 2.0: You make the content, they make the money.

    Web 3.0: The "internet" as we know it becomes distributed ala HTML over BitTorrent, with multiple parties contributing bandwidth, CPM is abandoned as a business model and web domains become not so important as sites but as authenticators for the source of data.

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  26. Maybe they should charge people a dollar to upload a video. At least then, hopefully, a lot of the crap on youtube would not be there.

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  27. But the problem is Google wouldn't do that because...it's Google. I personally don't think Google will do anything. I agree with the people saying they will be the next AOL and fall eventually. No more Google...it's sad to think about...

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  28. not all online video is a turd. cbs got more money from the airing the ncaa basketball tourney online than they did from tv viewers.

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  29. YouTube is on a global scale.

    Hosting costs have a limit e.g. 1mill per month = 12-13mill per year.

    So Google have to make that money back.

    Google now makes more advertising revenue than on TV. (Thats from Google Adwords)

    Google is the search engine for user content mainly in the form of websites. Youtube can be said to be the search engine for user content in video form.

    The same model applied to Google search engine can be applied to YouTube.

    E.g:
    User A on YouTube
    IP shows as from Washington DC
    User clicks video.

    Surrounding (or within the video e.g. pauses and shows ad - user has to close to continue) there are ads for companies from Washington DC - advertising their products/services (localization) or national companies advertising their products of services.

    So there is a heck of a lot of money to be made from marketing alone.

    Then other avenues for generating revenue could be to offer hi-res video hosting or bespoke packages to suit individual businesses at a slight cost - which again would generate an income.

    There are lots of other ways to make money from YouTube, so its not really a turd...

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  30. I am of the mind that Google IS flailing to whatever it can grab, kind of like the "Ebay" monkey paw......and you are seeing how THAT is going right?

    As they say, give a moron WAY too much money and WAY too much time, and crap comes into existence in buyouts and mergers.

    In this case, I could care less if Google tanks, and YouTube seems to be less of a functional information/entertainment venue and more of a "smoked way too much crack" place.

    Let them both die. After all, Mother Nature says weed out the stupid and the weak, and someone else will step into their places. They will either adapt and evolve, or croak out, neither of which is any REAL interest to me since:

    (A)I am not stupid enough to buy marketshares in any/or.
    (B)I own a TV, which gives me better video, and more entertainment. See: DVD Sales.
    (C)I am actually older than 30, therefore, have not interest in the general MySpace/Facebook/YouTube generations of children with no parents, too much time, and a cheap ass webcam who are functionally illiterate and somewhat (like a LOT of adults on there) socially retarded.

    Overall, I view YouTube with the type of "train wreck" glee that rubberneckers always enjoy. Nothing like watching a few minutes of someone 100% dumber than you are saying something that makes only sense to them.

    Kind of like any TV station in existence.
    But I don't have to use bandwidth, or click ads to do it!

    In other words, I agree with the above, a large majority of "User Generated Retardation" is just that: a NON-golden turd laid by that stupid ass chicken, a total money sponge.

    However, rarely enough, good stuff does come out of there, how is beyond me (like the music biz, or adult porn anymore!).

    It is a turd no matter what, but as they say, shit floats to the top, so adapt or die, either way, I still say they are stinking up my toilet.

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  31. Google is very easy. I use it to generate tons of leads to my website
    http://www.envisionfreedom.net

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