YouTube for years has been dogged by skepticism about its ability to turn its 6 billion-plus videos viewed each month into advertising riches — only an estimated 5 percent to 10 percent of these videos are now accompanied by ads. But Merrill Lynch analyst Justin Post sees the pendulum swinging slightly in YouTube’s direction. In a report released this morning, Post says he had polled two of the largest ad agencies with a focus on search, AXQA and Publicis Group, and found that they have been shifting incremental amounts of ad spending usually devoted to search toward YouTube. Other findings in the report:
–While international remains a growth area for search, the U.S. is becoming saturated and generating diminishing returns for advertisers. Over time this will cause more search dollars to be spent on social networks like Facebook, MySpace and video sites like YouTube, all of which have taken recent steps to make their offerings more useful to advertisers.
–Cost-per-click (CPC) rates are down in the second quarter of 2009 for search versus the first quarter, though click-through rates are up, which is bolstering overall search revenue. Both firms expected a recovery for search in the fourth quarter of this year.
—Yahoo (NSDQ: YHOO) and Microsoft (NSDQ: MSFT) search were generating better click-through rates than Google (NSDQ: GOOG) because fewer advertisers were using those two sites, but despite the lower conversion rates, Google’s traffic made it a better buy.