Is YouTube Right for Direct Response?

by Peter Koeppel on Apr 8, 2015 3:00:00 AM Digital Marketing

YouTube Is Popular...But Direct Response Has Yet to See ProfitsFor years now, YouTube has been a go-to destination for Internet users from all walks of life. And Google has successfully nurtured the video-sharing site into a Web mainstay—but there’s one big problem: it’s not a profitable business.

At the end of 2014, Google’s online-video unit posted revenue of $4 billion, which was up from $3 billion in the previous year. Overall, YouTube accounted for 6 percent of Google’s overall sales in 2014, but it did not contribute to its earnings. When the company takes into account the fees it pays to license content, as well as the infrastructure to ensure faster video-loading speeds, YouTube is just breaking even (according to insiders familiar with the matter).

YouTube struggles.

In comparison to other online powerhouses, YouTube is struggling. For example, in 2014 Facebook generated $12 billion in revenue and nearly $3 billion of that is profit. The social networking site has 1.3 billion users. Similarly, YouTube has more than 1 billion monthly users.

The struggles to establish and maintain profitability may lie in YouTube’s main user base. Most of the users, which tend to be younger than average online users, use the website as a repository for videos that are embedded and accessed from other sites. Very few visit the site directly each day.

YouTube is trying to engage users.

As a result, YouTube executives are trying to find ways to engage users directly. Ideally, users would “tune in” to YouTube just like they would their favorite television station to find different “channels” of entertainment. But the shift has been difficult to manage. Google Executive Susan Wojcicki begins her second year of heading YouTube with some new competition on the horizon. Facebook and Twitter Inc. are both developing their own video platforms as a way to circumvent YouTube and keep some of the traffic on their own sites.

Although revenue for the website improved in 2010 with the addition of ads, Ms. Wojcicki and her colleagues will need to rethink their approach if they want to prove profitable for Google. Until then, direct response marketers will simply have to wait and see.

Photo by Rogo Korosi

Peter Koeppel is president of Koeppel Direct. He can be reached at 972-732-6110, pkoeppel@koeppelinc.com, Twitter, Facebook, LinkedIn, and Google+.

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