YouTube Makes Sense but No Dollars

Free video clips on YouTube are popular but its ads aren't.

 @ibtimes
on July 20 2006 3:48 PM

With short, bite-sized videos delivering content ranging from treadmill mishaps to Iraqi war footage, YouTube.com is drawing droves of people and experiencing phenomenal growth.

The company has garnered over 19 million unique visitors per month, rising from obscurity in less than 15 months. In the process it has become the largest video-content provider online.

Despite the success, some experts warn that unless its business model changes, the company won’t be around for long.

Josh Martin, an IDC research analyst, declared in a report this month that YouTube will struggle to make profits primarily because the viewers have been accustomed to paying nothing for their service.

YouTube must implement myriad changes, Martin stated. The truly difficult task for YouTube is to change the entire culture of the viewers that propelled it to overnight success.

Research shows nearly half of all online youth (13 to 21) are downloading or streaming video content, with YouTube being one of the few sites to serve their hobby. It serves upwards of 100 million videos each day.

However the problem is that the traditional way in which media companies raise revenue - through advertisements - does not translate well with the young online viewers.

In the same way most people skip ads as they flip through their newspapers and magazines, most youth click past online banners. For sites such as YouTube with a strong following of image conscious youngsters, the problem can be worse: crowding a page with ads can make a company look like a sell-out,” a money-grubbing corporate machine deplored by youth.

A junior at the University of California, Los Angeles, Jon Karhaman, 21, explains that ads on websites are not only annoying, but insists they are ineffective, because everything always seems like a sales pitch.

Irritating customers may be a small price to pay if the ads were generating revenue, but they usually prove to be so sufficiently out of sync with today's audience, that they are getting completely ignored.

Of the few ads that teens see associated with online video, Brian Haven of Forrester Research states in a report, the likelihood that they will interact with these ads is insignificant.

This will pose a formidable challenge to YouTube, whose audience could already be accustomed to a site free from clutter. The site has only recently begun displaying ads, including experimentation with Google text ads banner campaigns.

To complicate matters, what is currently one of the site’s biggest strengths could be its biggest drawback when it comes to advertising.

Users today can store their videos on YouTube’s web site and embed links to those videos on any other site. While this is great exposure for YouTube on the Internet, people watch the videos on other sites free of charge.

Such an arrangement means that any ad campaign wouldn’t reach those viewers.

Experts believe that with YouTube’s server fees reaching half a million dollars per month, it can’t afford give away content forever.

Solutions

One solution could be to follow the example of mainstream media sites which favor showing ads immediately preceding the video. However “these ads are generally perceived as disruptive to the content, Forrester's Haven said, adding that 71 percent find ads in streaming video annoying.

UCLA’s Jon couldn’t agree more.

“Why can't I watch a clip without being asked to buy or subscribe to something? he asks.

Traditional techniques, targeting, and format, Forrester's Haven states, simply don’t resonate with today’s young consumers when they are online. He notes that 39 percent seldom interact with these ads.

Instead he says, media companies such as YouTube need to offer ads that are contextual and short. He suggests that media companies such as YouTube should make ads that relate directly to the content they are associated with.

Their attention is at a premium, he says.

He also suggests that marketing and media executives should resist te urge to simply repurpose TV ads for the online audiences stating today’s youth demand creativity and entertainment, not the same tried formulas.

IDC's Martin says that people will eventually accept advertising-supported video online, but adds that this will happen not likely quickly enough for YouTube to reinvent itself.''

Industry observers and experts will be closely watching YouTube, and not just the videos. Whether its management can capitalize on current successes and solidify itself as a revenue generating company remains to be seen.

Until then, Jon says he’ll enjoy watching his Jordan highlights and old-wrestling vids” for free.

That stuff is pretty funny.”

Share this article