As has anyone in the online industry, I have closely followed the YouTube saga since its acquisition by Google. Undoubtedly YouTube is one of the greatest success stories of the Internet era, adding users and usage faster than any site ever launched on the web, including MySpace, Facebook, Twitter, and Google. What is also often missed is that YouTube is the third largest search site on the Web in terms of query volume, behind only Google and Yahoo. Despite these impressive metrics, YouTube has failed to deliver meaningful revenue and loses approximately $1MM/day due to its huge bandwidth costs.
YouTube’s more recent strategy has been to pursue premium content as a means to generate revenue. All video metrics point to the reality that premium content and professional content is the only real moneymaking video opportunity on the web, as Hulu has demonstrated most recently. YouTube’s original premium content strategy was to approach major broadcasters and extol the virtues of its huge audience combined with the Google advertising prowess. The pitch was essentially “give us all your content and we will send you a big check each month.” The problem was that major media companies had already witnessed the loss of channel power from Google web search, and sat by frustrated while Google made billions from its content aggregation model in the form of Google web search. These lessons wouldn’t be forgotten and Google’s pitch fell on deaf ears.
YouTube has had recent success signing premium content providers, most significantly Disney, but with three huge concessions to its previous business model: 1) Disney, and more specifically ESPN, will be allowed to monetize its content being viewed on YouTube; 2) ESPN will be allowed to embed its own video player on YouTube; and 3) Disney will be given a branded “walled-garden” to display its content within YouTube. This deal solves the three key concerns media companies have about working with YouTube.
Media companies are in business to sell advertising, and their trusted brands can deliver the dollars. Second, they care deeply about their brands, and the ability to control the look and feel of the player, as well as protecting the brand from unfiltered user-generated content is a critical requirement that has historically kept most brands off of YouTube. On the surface this seems like a win for YouTube, but I would argue it’s the first crack in the strategy that has made YouTube so successful, and that is the ubiquity of its brand and the ubiquity of its user experience. A few months ago I argued that user-generated video is like instant messaging in that everyone uses it and no one makes money on it. How then can YouTube find a business model?
Clayton Christensen, the noted Harvard Business School strategy professor, wrote the seminal work on the disruption of the incumbent’s business model called “The Innovators Dilemma.” Essentially the book outlines the challenges a company faces when a young upstart creates a disruptive new business model. Ironically, despite its own young age, in this case YouTube faces disruption from Hulu. In just a short time, Hulu has executed brilliantly on its premium long-form content strategy and delivered early success for its owners. Amazingly, it has YouTube turning itself inside-out to figure out how to compete. This is precisely the wrong tactic for YouTube to take. History has shown again and again that companies cannot fundamentally redefine themselves in order to respond to a competitive threat. Everything that has made YouTube successful will work against it in trying to compete head on with Hulu.
Instead, YouTube must exploit its assets to build a sustainable business compatible with its original strategy. In YouTube’s case, their most valuable asset by far is their search volume. However, what continues to amaze me is that despite having the most talented search technologists on the planet, YouTube’s search and related content algorithms are shockingly poor. With that as context, here is my prescription for YouTube to finding its own financial success.
What Google needs to do to fix YouTube
Fix the search algorithm. I mean really? Really? Have you really looked at YouTube’s or Google Video’s search results recently? Can anyone in the search industry unpack their algorithm for me? I’ve been in the search business for over a decade and I cannot figure out what they are ranking on, and certainly can’t imagine they look at these results and feel good about them. Part of the challenge here is that videos are fundamentally different than text documents. First, there is a paucity of content to index. Most videos have just a generic title and description and some user generated tags. I can tell you that we have looked at the user tags of over 2 million YouTube videos, and the same spamming problems that exist on the Web exist within YouTube.
What’s needed is a more robust approach to creating high quality metadata for proper indexing. Second, a better popularity and quality score needs to be integrated, because videos are also lacking the link data that made PageRank so successful for ranking web documents. Also, how about some search syntax specific to video. It would be very useful to have operators similar to what exists on Google web search. For example, a syntax such as “title:keyword” for searching just within the title or “transcript:keyword” for searching just within the transcript or “source:SampleSource keyword” for searching within a certain source like FoxNews etc.
Merge the Google video search into the YouTube search box. When’s the last time you used Google Video search? Its not even available from the home page of Google, and represents one of the strangest user experiences in all of search. The page layout is impossible to decipher, and it seems unable to decide what master its serving. Is it driving traffic to YouTube? Sometimes—although via an embedded YouTube player. Is it the world’s biggest video index of the Web? Not even close, when compared to Blinkx or Truveo. I have no idea what this product is trying to be.
Make YouTube the web’s video search engine. As I asserted above, user generated content will never produce significant revenue for YouTube. By its very nature it is virtually impossible to monetize directly. However, it is one of the Web’s most valuable loss-leaders. This content has enabled YouTube to become the web’s 3rd biggest search engine, and its time to exploit that asset. To do this, YouTube needs to build a content submission API that gives content owners the option to submit the entire video or just a deep link to a video on the content owner’s website. It needs to include a comprehensive set of all possible metadata to finally give YouTube the raw material it needs to build a proper search algorithm. Then its needs to redesign its search results page to help the user decide what kind of content they wish to view, be it UGC on YouTube, premium content on YouTube, or links to content off YouTube.
Create a business model that works. To me, this answer has always seemed obvious in that there is a perfect precedent for premium content publishers. For decades, premium content television producers have paid cable operators huge fees to carry their channels. Why do they do this? To create the consumption they need to have an advertising business model, they need to have audience. Carriage fees gives them a predictable audience they can monetize. Merging this model with YouTube’s search asset is the path to YouTube revenue.
If I were YouTube, I would deploy a two-part business model. Premium publishers would purchase shelf space each month depending on the number of clips submitted for indexing. This shelf space would buy them a set number of “clicks” on their content, and those clicks could either resolve to content uploaded to YouTube or back to the publisher’s own web site. In addition, publishers would be allowed to “bid” for clicks in excess of their included amount to drive additional views. Obviously the CPC on YouTube would be a fraction of what it is on web search (remember—a $.10 CPC is equivalent to a $100 CPM). This means that average CPCs would probably hover around a penny or two, creating the need to allow for tenths of a cent bidding increments. As ad dollars continue to flow online, publishers will be in a position to pay more over time. In the short term, the carriage fees allows them to build a more predictable audience and for YouTube to build a recurring revenue model.
YouTube’s current gyrations chasing Hulu are the best thing to happen to Hulu. Hulu’s DNA is about premium long form content. Everything they do is geared towards this mission, and they do it extremely well. Nothing in YouTube’s DNA gives them any advantage for this market. YouTube needs to exploit its core assets and advantages to find its own business model.
Opinions expressed in the article are those of the guest author and not necessarily Search Engine Land.