Monday, August 31, 2009

YouTube -- Destroying $100s of Millions in Wealth at a Video Near You

Internet video viewing's vault to the mainstream continued virtually unabated throughout the summer -- despite vacations -- and YouTube is the primary beneficiary, serving up 42% of all videos viewed online in the U.S. in July according to comScore. YouTube users viewed 8.9 billion videos in July alone -- with total views up a massive 66% just since March! Viacom Digital's sites ranked a distant second at 3.8% of all total views -- and much-hyped Hulu ranked 5th overall with 2.1% of the overall market. (The average YouTube user views 74 videos per month, whereas the average Hulu user views only 12 videos per month; of course, Hulu videos are generally significantly "different" -- premier and longer form television content, as opposed to YouTube's dancing cats).

As my colleague Eric Quanstrom (VP Marketing & Strategy at Sorenson Media) points out, at its current pace, YouTube will cross 15 billion monthly views by year-end. And, perhaps even more amazing is that YouTube is now the second most used search engine, thereby giving Google an unbeatable 1-2 punch. Amazing news for Google, right? That's a massive amount of eyeballs against which to throw ads.

But, ultimately the only numbers that matter -- the ability to monetize -- just ain't happening yet as we all know. Instead, as Eric points out based on an analysis by Credit Suisse, YouTube takes in roughly only $20 million per month. And if you take this number and divide it by total views, that means that YouTube makes a paltry 1/5 of 1 cent (i.e., $.0022) for each view -- thereby bleeding cash to service the service. Credit Suisse estimates $470 million of blood -- in the red -- in 2009 alone.

Yet, Google management, of course, continues to believe (invest) that YouTube's 8.9 billion eyeballs are worth vastly more ultimately than virtually any other competing use of cash. And Quanstrom's conclusion? In his words, "this may very well be the most effective destruction of wealth (attention, business models, competitive resources) we've ever witnessed, ever. Completely fascinating."

Well, perhaps the biggest destruction of wealth is AIG and others of its ilk during the current economic melt-down. But, Quanstrom's point is well-taken, although Google undoubtedly has a master-plan ... they must, right?

(Although Twitter is doing its best do destroy that plan ... read this --