We've talked a lot over the months concerning the future of YouTube, and what Google (Nasdaq: GOOG) will do when growth slows down, and shareholders begin to pressure it to become an important part of generating profits for the company.
Earlier this month we talked about Google attempting to get people to view YouTube videos on their television sets, as there would be less resistance to watching ads. People are already socialized in watching ads on TV, so wouldn't resist their introduction as much as they would directly to the Internet.
Another thing I've thought about a lot lately, and Ashkan Karbasfrooshan brought up as a possibility on Seeking Alpha, was the idea of Google using a nuclear option to monetize YouTube.
What Karbasfrooshan meant by that was simply getting rid of all the garbage on the site. Traffic of course would decline by a significant amount, but it would leave a much better user experience for the viewers.
Even if Google lost up to 75 percent of streams to begin with, it would still be the leading video Web site on the Internet. When you think of it, bragging rights to large audiences is a throw back to traditional media. In the new media world it shouldn't be, and isn't as, important.
So is Eric Schmidt missing the point when he talks about monetizing YouTube as being the holy grail? I think he is. First, Google already has a legitimate, if narrow, business model. They offer Internet ads better than anyone, but they also have an inherent weakness which over time will reveal itself as the Internet advertising market matures. (That won't be for several years at minimum.) They know that, and so are eager to show they have something in the works that will kick in to battle that coming reality.
That's why Schmidt is promoting the possibilities connected to YouTube. But there's no way to get around it: he has to do something about it. There's not a person that understands the Internet culture and marketing that doesn't know there is no way to do this without getting some people mad. So what? It will have to be done one way or the other.
Does this mean Google will do the nuclear option thing in the future? Probably not. But they will have to do something to bring higher quality content and separate it some way from the junk most people don't want to see. Maybe a YouTube Plus, or something like that?
That could work good, but it doesn't deal with the costs of running the portion of the videos that will never be able to be monetized.
Hulu is already doing this, and they don't have to deal with the high bandwidth costs of showing UGC videos that do nothing for the business.
There's no question that YouTube must find a way to be monetized. This will take some guts on Schmidt's part, and he'll either have to cut costs through the nuclear option, or put up advertising against the content. Either way, there will be less viewers on YouTube. From a business point of view, that isn't necessarily a bad thing.
The reason that'll work is what business would want the people that only choose to use an online video service for free? If Google is struggling financially with it, how will much smaller companies do when they think a large number of users is good for the business? YouTube has already instructed us that it isn't a business model, as Google is subsidizing the site.
In other words, they hold a solid monopoly on the video business, and by gravitating toward monetizable video, they position themselves to generate significant income from a legitimate business model. They need to just suck it up and make the moves they know they need to make.
There is no downside from the temporary fallout, because other businesses can't afford the people that only want something for free either. What is it Google and Eric Schmidt don't understand about this?
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