With the daily viewing of videos rising to 80 million and monthly clicks approaching 2.4 billion, YouTube has evolved to the point of where the tire must meet the road.
The current digital generation has become used to getting things for free. While this sounds like the ultimate offer, in reality there is no such thing as free; somebody has to pay for it. YouTube is at the place where they must figure it out if they are going to survive. Estimates are that the monthly bandwidth bill by itself is between $300,000 to $400,000.
But with their viewers wanting to view things for free; subscription, pay-per-view or pay-to-upload video will not be part of the YouTube business strategy. That means that there is only one thing they can do, and that is to offer advertising.
Because of the fickleness of their users, the advertising will have to proceed cautiously and slowly. Like some users say, if it's done wrong, they'll just leave the site and go to another that offers the same thing.
The challenge for YouTube and other social-networking sites is to allow the free expression of its users, deal with the copyright issues and offer a platform for advertisers to get their message across. All of it must be done while retaining their core audience.
Julie Supan, YouTube's senior director of marketing says, "Right now, YouTube is not for sale, the path to profitability is in sight."
While she says the path to profitability is in sight, she isn't able to define the path.
"We want to get it right, it's not just a matter of whether or not the advertiser will find value. It's also whether the users find value in it.
Don't expect YouTube to embed commercials at the start or end of videos, she said. "We don't think those things will be in line with our community.
"Over time, YouTube will have created a new model, just as Google created a new model for Web-based ads."
John Cate, whose firm Carat Fusion launched an Adidas campaign on MySpace recently said, "There is an incredible upside as long as we don't screw it up." What they did on MySpace was to people created and posted their own video commercials for Adidas. Now that's something that would probably work great with YouTube.
Recently YouTube also tried ads with Yahoo and Google and also launched the banner ad campaign for Disney's "Pirates of the Caribbean: Dead Man's Chest."
Deep Focus, another marketing agency put the movie trailer for Dimension Films' "Scary Movie 4" on YouTube and it one of the most-watched videos on the site.
Still there is a lot of pressure to come through quickly. While they have $11.5 million in operating captial from Sequoia Capital, the venture capital company, their huge growth is pressing even that. With wages, overhead and the huge bandwidth expenses already mentioned, how long can they keep going through money before someone starts getting impatient.
This along with how their users respond to the inevitable advertising will determine whether YouTube has a future or will become an asterisk in the online business failure junkyard.
Other sites of interest:
YouTube: Too rough for advertisers?
Home video as advertising on YouTube
YouTube hailed as advertising medium of the future
YouTube ‘bigger than MTV’ for advertisers
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