The Wall Street Journal says that YouTube didn’t contribute to Mountain View’s earnings. The issue, or one of them for a lets-try-and-pay-for-all-this-with-banner-ads, is that most users arrive at videos via links, rather than daily visits to the YouTube homepage where Google could charge a premium for ads.
WSJ.com also mentions that the site’s reach isn’t impressive, with one source’s estimate that nine percent of viewers account for a suprising 85 percent of streaming video views. That aspect of YouTube’s audience makes it a much less appealing audience for the ad buyers, even as Google pushes their original content to compete against “the corded set top TVs”.
My theory is that Google has intentionally been losing money with YouTube, or very aware that they weren’t going to make any, and went into the acquisition in 2006 eyes wide open. Don’t forget, YouTube wasn’t Google’s first and only online video streaming service, they were pushing Google Video pretty hard as a direct YouTube competitor when they acquired it.
Why do I think this? A couple reasons: Under certain circumstances, a company can make money by losing money because of write offs. YouTube allows Google Inc, the parent company, to write off hundreds of millions of dollars a year. Does this math work out at the accounting level with a publicly traded company the size of the devourer of worlds, all mighty Google? Maybe, but I’m no accountant.
The second reason is the audience. They want the audience for “remarketing”, for juice, to keep YouTube viable as money pit for the company. Eyeballs have been worth something to someone since day 1 of the internet. It just doesn’t work without traffic. YouTube drives traffic to Google in the short term and long term tail.16 karma points