YouTube: One Billion Users and Little Revenue

Douglas A. McIntyre

Google Inc.’s (NASDAQ: GOOG) YouTube management bragged about reaching the one billion active user level. But it said little about its revenue contribution to the search company, because it makes almost none.

In the offending blog post, leaders of the big video website make misleading comments about how well it has done with marketers:

In the last eight years you’ve come to YouTube to watch, share and fall in love with videos from all over the world. Tens of thousands of partners have created channels that have found and built businesses for passionate, engaged audiences. Advertisers have taken notice: all of the Ad Age Top 100 brands are now running campaigns on YouTube. And today, we’re announcing a new milestone: YouTube now has more than a billion unique users every single month.

Two pieces of evidence work against the YouTube boast. The first is an examination of the site itself. Without a question, there are paid video ads, but they are few and far between when the huge amount of content on YouTube is taken into account. There are a fair number of movie trailers. Many of the most watched videos carry no ads at all. Then there is the YouTube paid TV and movie section, meant to compete with similar Netflix Inc. (NASDAQ: NFLX) and Inc. (NASDAQ: AMZN) products. If the number of “views” next to these shows and films is any indication, this primitive VOD has been no success at all.

Google mentions YouTube as an advertising vehicle in its earnings filings. But does not break out sales from the business, an almost sure sign the search company fears Wall St. will be left with a bad impression.

The two primary mentions of YouTube in Google’s 10-K are that it is a cost center and that it has analytic tool for what are a very limited number of advertisers.

In addition, there was an increase in data center costs of $784 million, primarily resulting from the depreciation of additional information technology assets and data center buildings and an increase in labor, energy, and bandwidth costs, and an increase in content acquisition costs of $236 million, primarily related to content displayed on YouTube, partially offset by a decrease in mobile phone costs.


In addition, YouTube provides a range of video, interactive, and other ad formats for advertisers to reach their intended audience. YouTube’s video advertising solutions give advertisers a way to promote their content to the YouTube community, as well as to associate with content being watched by their target audience. YouTube also offers analytic tools to help advertisers understand their audience and derive general business intelligence. In the past year, YouTube has experienced strong growth in mobile viewers and has established key partnerships with content companies to help monetize mobile video.

Not much to show as YouTube reaches what it considers a critical milestone.