Why YouTube holds the key to Google’s growth

Google is still coining money (latest quarterly profit is $2.3bn on sales of $8.6bn) but the company is searching harder than ever for new sources of revenue.

This coincides with the return to the firm of co-founder Larry Page as CEO and the sidelining of predecessor, numbers man Eric Schmidt.

Page is currently on a hiring spree (2,000 new Googlers in the last quarter) and one of the key planks of his growth platform is seemingly ever-unprofitable YouTube, acquired for $2bn a few years ago.

As well as its big dominance in search (although this is feeling the heat in the US from Microsoft’s Bing) Google has a huge presence in its chosen growth area of online advertising and YouTube is vital for this.

Essentially, if Google can make YouTube a paid-for medium it will own the world’s biggest broadcaster.

It’s highly unlikely that Google will invite users to pay for YouTube (although it can’t be ruled out completely) but its clear strategy is to get brands to pay.

In this it’s already having some success with advertising but the real growth area is persuading brands to pay hefty fees to run their own channels.

Google has clearly recognised that the norm in much brand advertising these days is to make several versions of a very expensive film (one long one for YouTube and other video sites, a longish one for the broadcast launch and then a shorter one for future broadcast use).

The reason this works is that the film, or so the brands hope, will gain huge amounts of free play, mainly on YouTube.

If all this global airtime became a bit less free then Google would profit mightily.

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About Stephen Foster

Stephen is a former editor of Marketing Week and London Evening Standard advertising columnist. He wrote City Republic for Brand Republic and is a partner in communications consultancy The Editorial Partnership.

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