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Perspectives on building technology businesses and AcceleratorIndia from Cartezia

Can YouTube's quest for alternate revenue streams succeed?

Sunday, April 26, 2009

With Ad revenues falling, content owners are looking to develop alternate revenue streams more closely tied to their users' online behaviour. In a slowing worldwide economy, these initiatives are key to their survival until growth returns.

Monetizing content is the holy grail that all content owners aspire to reach, with varying levels of success. In an earlier post, Catalyzt highlighted the challenges faced by YouTube, the leader in online video, to generate revenues from the huge number of visitors that it regularly attracts. However, YouTube is now experimenting with multiple approaches to generate revenues from the content that is being viewed.

These approaches still rely too much on search as a key function that helps advertisers reach their target audience and are not innovative enough to reflect the changes in online behaviour of customers. One of the main components of this approach is to track what users are searching for and put promotional videos next to the search results. The advantage of this approach is to combine the synergies between YouTube's own search engine and Google search. However, the underlying model is still search based advertising. Another option it is trying out is to use embedded ads while users are watching the videos. Without targeting these at communites that are of specific interest for the advertisers, this approach has limited impact. Further challenges include the cohesiveness of the community through their shared interests.

Google has not disclosed how much money it is investing to monetise online video. Similarly the total revenue that Google's YouTube gets from the online video advertising is also not disclosed, but is estimated to be in the region of $125m. Considering the amount of traffic that YouTube generates, this revenue is very small and doesn't fully represent the potential market that is available.

In an industry with falling ad revenues, YouTube/Google faces a real challenge to monetise its massive content inventory and the user traffic. Its success or failure will set the tone for the rest of the industry's fortunes.