Google says it is testing new ideas on YouTube and still learning what what works and what work when it comes to ads.
Though YouTube dominates the online video space, Google appears to be having a hard time selling ads with YouTube videos.
According to a report in The Wall Street Journal, ads on YouTube have not performed as well as expected and are likely to bring in about $200 million this year.
Last month, The Registerreported that YouTube's Jordan Hoffner offered a similar assessment of video advertising at the Supernova2008 conference in San Francisco. Many advertisers, he said, aren't interested in the fragmented online audience.
The hope among online marketers is that things will change, as technology allows for more personalized advertising and as the online ad providers learn to cater more effectively to ad buyers.
And if Google is having trouble, it may not be that bad.
"They're still performing pretty well," said Kathy Sharpe, CEO of digital marketing agency Sharpe Partners and founder of VideoThang, LLC, a free online video editing and sharing application.
During the first quarter of the year, revenue from Google-owned sites increased 49% from the same period in 2007 and revenue from Google partner sites increased 33%.
Any company that can point to that kind of growth is usually pretty happy, said Sharpe, but the expectation for Google is simply higher.
Google, to be sure, isn't ready to throw in the towel. "The Google model is one of innovation and experimentation," a Google spokesperson said via e-mail. "We continue to test new ideas to create marketing solutions for our users, partners, and advertisers. This philosophy continues at YouTube, where over the past several months we've learned a lot about what works and what doesn't for our community and our advertisers. We're excited by the progress we've made and we look forward to this continuing challenge."
Such optimism goes down well with a glass of rosy ad spending predictions.
IDC last month said that it expected worldwide spending on Internet advertising to total $65.2 billion in 2008 and that it anticipated 15% to 25% annual growth through 2011, when Internet ad spending is projected to reach $106.6 billion worldwide.
Then again, IDC said, "Keyword ads will remain the dominant type of Internet advertising throughout the forecast period, capturing more than a third of annual online ad spending worldwide." That doesn't augur well for efforts to turn YouTube into a cash cow.
This isn't the first time Google has been stymied in its mission to organize the world's information and wrap it in attractive ads. The company hasn't done all that well with social network advertising either. In a February financial conference call, Google co-founder Sergey Brin said, "We have had a challenge in Q4 with social networking inventory as a whole."
Back in August 2006, Google signed a deal with Fox Interactive to run ads on social networking site MySpace for more than three years. As part of the deal, Google guaranteed Fox Interactive a minimum of $900 million. It remains to be seen whether Google's bet will pay off.
Sharpe believes that video ads can work. The issue she sees is that Google doesn't know how to sell them. "There are ways of doing advertising on YouTube, but I don't think Google has the mentality to sell it," she said. "They just aren't a sales organization."
Perhaps when Google reports its financial results next week, the company will hint that it has cracked the code for pitching social network and YouTube users. But don't count on it.
Sharpe believes Google watchers need to moderate their expectations. "There's bound to be a slowdown," she said. "I don't know if Google can have a success if it doesn't involve an algorithm."
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