YouTube advertising will boost Google by 2011
NEW YORK (Reuters) - YouTube will need at least two years to start making a meaningful contribution to parent Google Inc's revenue, despite a clutch of advertising initiatives this month aimed at cashing in on its online video dominance.
In the last eight days the popular video-sharing site has launched four new ad formats, signed its first full-length video pact and even taken its first dip into e-commerce.
Executives described most of the revenue-generating initiatives as experiments or beta tests, but analysts said the long-awaited moves will increase Google's revenue, though not in the near-term.
Google rakes in about $5 billion in quarterly revenue, mainly from Web search advertising. Though Google doesn't break out YouTube's revenue, analysts estimate it will make $200 million to $250 million -- a small percentage of the parent's revenue -- this year.
"In terms of making meaningful high single-digits (percentage) revenue share that would be 2011," said Martin Pyykkonen, an analyst Wunderlich Securities.
Investors are increasingly voicing worries about when the San Bruno, California company, which Google paid $1.65 billion for in 2006, will start to deliver revenue and profits in line with the potential of its huge visitor numbers -- more than 330 million worldwide users in August alone.
"This has gone on long enough. It's easy being the Web's largest video repository when you're giving it away," said Colin Gillis, analyst at Canaccord Adams.
The concern for investors is that as Google's revenue growth starts to decelerate there will be renewed focus on YouTube's huge bandwidth and hosting costs and its impact on capital expenditures.
"What is the strategy to monetize this?" asked Gillis.
Despite these concerns Canaccord Adams still expects YouTube to achieve 50 percent revenue growth in 2009 "even in a down economy." It also expects YouTube to start making significant revenue contributions in about two years.
OPPORTUNITY
YouTube's income potential is self-evident with 13 hours of video uploaded to its site every minute and millions of viewers every day. That has helped YouTube become the second largest repository of search terms after its parent, and now ahead of Yahoo Inc.
YouTube has started running "promoted videos" which come up with search terms. For instance, a search for iPhone 3G brings up a "promoted video" on the right hand of the page of a short infomercial on how an iPhone screen protector works. A search for credit cards brings up a list of traditional Google text ads down the right side.
YouTube is also trying out a range of ad formats including InVideo ads, which overlay text across the bottom of a relevant video. It is also running home page video ads and video contests sponsored by advertisers. Continued...
