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YouTube Ads: Day 2 Grumbles and Math

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YouTube’s newly launched ad formats have been the topic of much discussion this week, both here and elsewhere, with much of the hullabaloo centered on VideoEgg’s claim it had “invented the video overlay.” (Survey says: nope.)

Analyst Henry Blodget crunched the numbers yesterday on YouTube’s potential revenue from the new units, concluding it was minimal. We dropped him a note to point out that YouTube is charging CPMs for every overlay seen, rather than every time a viewer clicks on an overlay (which Google PR confirmed via email). He revised his numbers, also reducing the expected CPM, and ended up with mostly smaller estimates of $12 million to $360 million in annual revenue.

Then today, Blodget caught fellow analyst Mary Meeker on a calculation error of her own, this one a bit more serious. Her estimates of $4.8 billion of gross revenue and $720 million of net revenue depended on $20 CPMs being the cost per thousand, but rather the cost per individual, Blodget said. So those numbers drop three digits.

Elsewhere, people are making far too much of a potential YouTube user revolt stemming from dissatisfaction with the ads.

It’s important to note that the ads are only shown on partner videos, with partners’ permission, and YouTube is sharing revenue with the partners. We’ll have to wait to see if a mass exodus actually happens, until then this is the normal friction of a change on a site with a dedicated community. Past mass defections never really came to fruition.

Lastly, quite a few people are having fun criticizing the press, especially CNET, for fawning coverage of the so-called “viewer-friendly ad format.” The important thread here is that ads are, at best, a necessary evil.

8 Responses to “YouTube Ads: Day 2 Grumbles and Math”

  1. Thee Stranger

    These “on video” ads are one of several reasons why I don’t watch tv anymore.

    One thing I’ve always been told is that you need to interest a viewer within 30 seconds to get them to watch a whole video. Now between the 15 to 25 second mark, those people will be paying more attention to the ad instead of the content.

  2. Google can display ads for the content providers that want to earn money. It’s just like Google AdSense. If a video-blogger wants to earn money, he should be able to activate the Youtube ads which will show on but that should also show on the embedded version of the video.

    Speech recognition should make it possible for Google to show very relevant ads.

  3. Liz, I think the point is not so much the grumbles as the relatively small benefit gained for them.

    alan p on August 23rd, 2007 at 1:31 pm

    Alan, I would not refer to the huge amount of attention VideoEgg has recieved as a small benefit.

    VideoEgg manages a large ad network made up of social networking sites. Google adopting this format means that VE just hit the jackpot.

    A lot of people in the marketing community were paying attention to this announcement and nearly every single article I have looked at mentioned VideoEgg directly.

    VideoEgg wins…

  4. If users want content for free (which they overwhelmingly do for today’s web video), I think they have come to expect ads. Sure, there may be some protest, but it is better than the alternative. Plus, the majority of UGC will not have ads on the site, just the partner ones, as you pointed out.

    I do think there are other models that are not ad-based. This will mostly have to do with quality, professional content, and access to exclusive content. To make an analogy, why would you go buy a $1.99 bottle of water when you have lovely tap water for FREE!?! :)