YouTube Becomes Google’s (GOOG) Top Priority

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The time has come, late. But, the time has come. Google (GOOG) says that its No.1 revenue priority for the  year it to make money from it monster-truck video sharing site, YouTube.

According to Reuters, the company’s management admitted at its annual meeting that the road to profit for YouTube would be a long one with 2008 as a modest beginning. Senior executives also said there would be a lengthly wait until DoubleClick, the display ad serving business Google bought, would be a meaningful piece of annual sales. The news site quotes Sergey Brin, one of the company’s founders as saying "They both have potential, but for it to be a sizable part of our revenue, you’re going to have to wait at least a couple of years"

A couple of years could turn into never. While Google’s last quarterly reports shows that its search advertising revenue is still growing at close to light speed, sales from display advertising and video were nowhere to be seen. On the display ad side, that should be expected because Doubleclick is a recent purchase.

But, quarterly results for Time Warner’s (TWX) AOL, Microsoft’s (MSFT) MSN, and Yahoo! (YHOO) show that display advertising, the engine for Doubleclick’s business, is growing at a painfully modest pace. Will Doubleclick ever grow at the rate of Google’s core business? Almost certainly not.

YouTube has been part of the Google family for longer. Trying to get large advertisers with TV or other video marketing to use YouTube has not been impossible, but it has been close. Despite YouTube’s dominant share of the US online video market, the number of advertisers on the site is tiny.

YouTube’s problem may be simple. Unlike Hulu and other commercial video sites put up by large media companies, YouTube’s content is almost entirely from amateurs. It may have 100x the Hulu video views, but that does not make the chaos of the site’s experience a natural place for top tier marketers to put their money.

For the next two or three years, search advertising better stay good. Google will not have anything else

Douglas A. McIntyre