Digrevo: Google's New Business Model Based on YouTube Ads

Wednesday, July 09, 2008

Google's New Business Model Based on YouTube Ads

Check out this Wall Street Journal video interview with Google Ad Executive Tim Armstrong in which he describes Google's new "ad model" for moving beyond the profitable search business and cashing in on the more than one billion YouTube videos watched every day.

Google will post ads before (preroll) or after (postroll) YouTube videos. The Wall Street Journal reports that only about 4% of the videos posted are appropriate for advertising because of copyright issues or other corporate concerns about YouTube content.

It is amusing to watch a digital ad exec eschew PowerPoint presentations in favor of drawing on a "napkin." After so many tedious digital presentations a hand-drawn sketch stands out. Maybe Google should try selling ad space on cocktail napkins instead of YouTube preroll.

WSJ reporter Kevin Delaney writes that YouTube advertising is not catching on quickly with advertisers despite the enormous numbers of videos viewed:

"YouTube is critical to Google's campaign to extend its advertising reach far beyond text ads tied to Web searches, its revenue powerhouse. Google wants to sell more video ads and display ads on YouTube and elsewhere. It also wants to crack the television, radio and newspaper ad markets. Its target: the 90% of global ad dollars that don't currently flow to the Internet."

Delaney's WSJ article includes a pie chart that underlines this key point: 90% of advertising dollars are still flowing to other media. Internet advertising is just one small slice of a $510 billion dollar pie. That's the real challenge that Google and other online media giants still must confront if they are going with business models based on advertising revenue: