YouTube is increasingly becoming a major force in disrupting network TV. Google Inc (NASDAQ:GOOG)’s video streaming site has become a major outlet for the portrayal of video advertisements, many of which are shifting over from regular TV and other offline and online media outlets. YouTube’s active user growth has been rock solid and just crossed 1 billion users. With roughly one out of every two Internet users visiting YouTube, the streaming giant has a bright and rosy future ahead.
The number one video site in the world has been growing at a strong rate from all angles. The monthly traffic to its platform had reached the highly coveted 1 billion user mark, from a previously reported 800 million in 2011. YouTube is increasingly getting a lot of attention from advertisers as a result of the huge traffic to its site.
Google Inc (NASDAQ:GOOG) doesn’t break-down the revenues generated by YouTube but almost certainly it’s a multi-billion dollar business for Google with some sell-side analysts projecting that the division generates roughly $4 billion in revenues. And all the big marketers are spending a lot of money through various Google sites. Google Inc (NASDAQ:GOOG) did reveal that its top 25 advertisers are spending more than $150 million a year, across Search, Display and YouTube.
YouTube is increasingly attracting more and more creators and now has more than 1 million creators from more than 30 countries that are uploading an astonishing 72 hours of video on YouTube every minute. YouTube’s revenues from partners have doubled for the 4 years in a row. Thousands of these content partners are doing very well financially in part due to YouTube’s revenue share arrangements.
To help its partners earn more revenue, one of YouTube’s officers stated that the company might consider experimenting on its platform, by allowing some of the content creators to charge the user a subscription fee. YouTube gets roughly 70% of its traffic from outside the U.S. and this power to reach a world-wide audience is increasingly attracting more global advertisers.
A very interesting data-point revealed by Google Inc (NASDAQ:GOOG)‘s management team, clearly shows the power and the scale of YouTube; Google’s top 100 global advertisers’ increased advertising spend on YouTube by 50% more in 2012 from the previous fiscal year. If advertisers didn’t get a satisfactory ROI for their marketing expenditure, they wouldn’t increase their budget on YouTube by such a big margin.
YouTube has been a high traffic website for a long-time, but the monetization of this large user-traffic has taken-off substantially only in the last 2-3 years. Thanks to an ad-format called TrueView, YouTube’s revenue generation scale has grown substantially. This ad format enables users to skip ads, and advertisers pay for only the ones which have been streamed. It has been a great success, as roughly 70% of YouTube’s in-stream ads use this format.
At the end of Q3 2012, Google disclosed that YouTube had more than 200 times more video advertisers than the average U.S. TV network. YouTube boasts of more than 1 million advertisers on its platform, of which a majority are small businesses.
And it also has stellar position on mobile, as 25% of its total views come in from mobile devices. In 2012, YouTube turned out to be the most downloaded free app on Apple Inc. (NASDAQ:AAPL)‘s app store for devices running on iOS. In addition to YouTube, Google Inc (NASDAQ:GOOG) Maps was also a leading app in Apple’s app store, in part due to the Apple’s map fiasco. YouTube also shows ads on mobile-based devices using the TrueView format on the iPad and other gaming consoles. Android’s market share of mobile devices compared to iOS based devices along with global consumer trends should drive a lot of mobile-based revenues for YouTube down the road.
YouTube is increasingly walking into the ball-park of traditional TV by segmenting its platform into channels. In addition to the user-generated content, YouTube gets a lot of content from third-party platforms like news sites, music channels etc, and it also sells movies and TV shows on a pay-per-view basis. The video sharing site also contains large amounts of free movies, and content uploaded by users. YouTube is categorizing a portion of this content into channels based on genre, and type.
However, the main benefit of building channels comes from YouTube being able to earn more revenue on its video ads by categorizing content according to genre. This carries substantial amounts of appeal for different advertising groups. For example, a Nike ad will likely get a lot more interested users, if it is portrayed on a sporting video, as opposed to a dog on a skateboard video.
With a huge installed user-base of more than 1 Billion and the ability to provide highly targeted ads to these users using channels represents a big value proposition of YouTube for the marketers.
The number of advertisers on YouTube will grow as users tune into the Internet with more tablets, and other mobile devices. Google Inc (NASDAQ:GOOG)‘s new line of devices should also drive more traffic to YouTube’s platform and as well as on Google Inc (NASDAQ:GOOG) Play. YouTube represents a major threat for any video company and regular TV, due to its gigantic library of free and professional content. Its channel strategy and TrueView formats should aid in roping more users and more importantly, advertisers from regular TV and other online and offline media companies.
YouTube’s dominance of the online video market is increasingly becoming like Google Inc (NASDAQ:GOOG)‘s position of the search engine market. And just like the cash-generating capabilities of the search business of Google, YouTube is rapidly becoming a major cash cow in itself.
The article YouTube’s Disruptive Impact originally appeared on Fool.com and is written by Ishfaque Faruk.
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