By Tim Giles
As published in Marketing Magazine's Around the Table Discussion 2007

Question: In October last year, Google acquired YouTube for a grand total of AU$2.2
billion. Despite reportedly attracting an audience of 40 million a day, the
site was yet to turn a profit. Was it a smart move or an exercise in
throwing fortune to the wind?

Response: The biggest problem for Google with the YouTube purchase is that the sites success is not based upon technology but rather the use made of it by visitors. The secret is its anarchic nature and inclusiveness not just the fact that it allows video file sharing. It panders to the exhibitionist and rewards self indulgence with a voyeuristic audience. It provides an outlet for the artist and the clueless tosser in equal measure. Spitting out a stream of instant junk celebrities and try hards with each download. The site allows and encourages these indulgences and is therefore successful in generating visitors.

Google on the other hand is successful at matching advertising to content and the new media frontiers provide new opportunities. Serving variable geo specific advertising into streaming media and inserting a sponsor’s message into downloads is essentially already possible and a tempting option for advertisers burned by time shift consumerism. But will consumers wait through a 15 second advert just to watch someone goofing off in front of a web cam?

The problem is that any attempt to monetise this traffic hits a catch worthy of a James Heller novel. Anthony Wolf from Soush (and formerly NineMSN) summed this up well.

“There may well be more people tuning in to watch a YouTube video than watch Sixty Minutes on a Sunday night but will advertisers be prepared to expose their brand to a mixed bag of user generated content?”

Moderate the content to appease the advertisers and you will just lose the traffic to a clone without such restrictions. Give the users free rein and you could end up with Osama’s latest snuff film being brought to you by Nike.

Thus far Google has been successful in delivering innovative ways of making money from raw traffic on the web. Its contextual advertising model delivers results by matching content with relevant advertisers and generating higher clicks than just running arbitrary banners. Doing this with unpredictable rich media is difficult. To be successful Google may need to spin off YouTube into niche interest sites operating at a more granular level.