A study by Mixpo reveals that in 2015, more video advertisers plan to spend money on Facebook than YouTube. If true, this would be a huge blow to YouTube’s longstanding and, until now, seemingly insurmountable advantage in the online video market.
This news coming on top of YouTube’s profitless 2014 spells possible trouble for Google’s acquisition just as it appeared to be becoming a new revenue source for the Mountain View company. Combined with the growth of native social video sharing on Twitter, Instagram, Vine, Snapchat, and other networks, the continued dominance of YouTube seems less certain that it ever has been.
How did it come to this, will this trend continue, and can Google do anything to reverse their fortunes or will the once promised Disruptor of the TV market watch its fortunes slowly dry up?
How Social Video Became a Market
Until fairly recently, it would have been almost fair to say that, “There is no Social Video Market, only a YouTube market.” Some networks, Facebook included, did offer a ‘native’ video platform, but for a long time these rarely offered more than a very basic tool for personal use. It was fine for that short video of your son’s graduation taken from your iPhone camera, but not good enough to host the Official Graduation Video from the University, to use a metaphor.
This came down to very basic infrastructure concerns: it is very expensive to stream video, especially high quality video. YouTube has been largely a loss-loader for Google until recently, due to these costs and the delayed monetization of the product. (Google and YouTube’s leadership would no doubt attribute to the slow and deliberative monetization of the product as necessary to preserving the User Experience, and this may be true but nonetheless has held back its profit potential for the company.)
Why did Google even buy YouTube, only to run it at a loss? While some long-term profit strategy was no doubt envisioned from the word go, it was also a defensive strategy to preserve their core Search Moat. Video Search, they recognized, would be crucial to delivering quality Search results. The possibility that some other company might build the next YouTube, perhaps disallowing Google from indexing it in order to capture the user onsite, no doubt played no small part in their thinking.
A lot has changed in the decade since YouTube first launched. Facebook, still a college social network at the time, now has over a billion users who spend a lot of time on the site. Other social networks have risen at the same time, like Twitter and Instagram, with their own large and loyal audiences, and video is at least as important to the social experience as the Search experience. At the same time, large social and dedicated video competitors have invested more in infrastructure, while at the same time the infrastructure itself has advanced and in some ways become more affordable or at least accessible. Netflix, for example, operates on cloud infrastructure powered by Amazon.
Traditionally, YouTube could at least enjoy an advantage as a source of sharable videos for other social networks, as well as websites and blogs, due to this infrastructure advantage. This is no longer a certainty. Niche competitors like Instagram and Vine have risen to compete by focusing on a short video format (with lower infrastructure costs), while large competitors Facebook and Twitter now wish to power their own YouTube competitors to keep you onsite (and on app) more and to compete for those video advertising dollars.
Facebook has been especially aggressive of late, advantaging its own video platform with new YouTube-like tools, exclusivity in the Facebook advertising platform (i.e. you can no longer insert YouTube videos in Facebook ads), autoplay videos in the News Feed, and higher organic reach. At the same, they’ve tweaked how YouTube links are displayed in Posts, making them less attractive to users. They’ve even made it possible to embed Facebook videos on external sites, like YouTube videos. Even without any of this, they enjoy a strong targeting advantage, with their treasure trove database of user information. Google, by contrast, often infers user categories like gender, age, etc…
While YouTube is still extremely popular, and enjoys its own First Class citizenship with Google Search, AdWords, Google+, and other Google properties, the rise of so many competitors, and especially Facebook, are putting them under greater pressure than ever to find new areas for revenue growth.
There is now a true Social Video Market, and Google and YouTube are no longer its presumptive rulers.
Beginning of the End, or End of the Beginning?
In some ways, the genie is out of the bottle and there is no way for Google to put him back. There will probably continue to be more options, and more players, competing in the social video market in the coming years, targeting a variety of devices and screens or all of them at once.
What isn’t as clear is how the revenue distribution will break down. Will we have one or a few huge players reaping most of the wealth while dozens of smaller players compete over the scraps left behind? Who will the largest share of the ad spending accrue to? For once, the obvious answer may not be the right one.
Assuming the leadership of Google isn’t asleep at the wheels of their driverless cars, a certain sense of panic must be setting in about these trends. YouTube’s potential for revenue growth has long been an area of doubt, and they were only just beginning to silence the naysayers. Without being a primary destination for video, YouTube’s growth potential would be forever stunted, and there can be no doubt Facebook will try, try, try to eat them away little by little.
Will we continue to Search Google for movie trailers, and there find the trailer’s YouTube video embedded prominently at the top of our results? Without a doubt. But many of us will have seen it Liked, Shared, or Promoted on Facebook already, so the demand won’t be as great. Even new growth areas for YouTube like app advertising could be blunted by Facebook’s video advantage.
To grow YouTube and its profitability, Google needs to both improve the value of their video advertising efforts, while also growing your Time on Service and YouTube’s overall audience reach. The first is no simple matter, but one solution long debated within the company would be tie YouTube advertising to Search history and any other useful details about YouTube visitors from their own database. While not as robust in some areas as Facebook, Search history alone could increase the value of YouTube advertising immediately.
Facebook knows a lot about who you are, but Google Search tends to know more about what you intend to click on or purchase right now. This is for the simple reason that your Search query often reflects your intent, i.e. if you are Searching Google for Smartphone Covers, it is fairly safe to infer you may wish to buy Smartphone Covers, and this makes it more like you’ll click on an ad. Amazingly, for all the ‘Big Brother’ concerns about Google knowing ‘too much’ about you, YouTube knows surprisingly little even about what Google knows about you.
Beyond this and exploring other, more effective advertising models, Google needs to increase Time on Service and Reach. The latter is beyond my pay grade, frankly, and involves a combination of increasing YouTube reach across their product line whenever possible (in itself a tricky proposition; for example, no one would accept YouTube ads however well targeted in their Google Docs, so not every Google property is a potential YouTube venue), and striking the sorts of deals that bring wider audiences, like high quality exclusive content and coverage, web and media partnerships, retaining talent with better contracts, etc… Some of this may involve yet more short term losses, however.
The second, far more difficult but perhaps more rewarding, possibility is to build or acquire a new growth app, website, or service, preferably with a social component, which captures a huge user base and keeps them interacting almost insatiably. They tried this with Google Buzz, which was a flop, and more recently Google+, which while a respectable player in the market is doing little to nothing to blunt the growth of Facebook or reduce user engagement with Facebook. It hasn’t even succeeded, in fact, in capturing those very audiences most unattached and disaffected with Facebook, teens for example. (Lest any loyal users attack me for pointing this out, I myself am a user and fan of Google+, but I also understand that my own example isn’t generalizable.)
As important as success in social surely is to Google’s future, and despite Herculean efforts to move their entire user base over to Google+’s Streams, Photos, and Hangouts, they have earned only respectable positions in these areas. Mention a social “Stream” or “Feed” based around Friends and Interests and most will think of Facebook or Twitter (or both). Google+ Photos is one of the best Photo Tools out there, yet mention social photo sharing and people are more likely to think of Instagram. Ditto Hangouts with WhatsApp, Facebook Messenger, and Skype. Market share is havings it intended effect of reaching a lot of people with Google’s product, but not always of capturing mindshare or leading the market.
It may therefore be worth it to seriously consider the rumors that Google is looking to acquire Twitter. Without venturing into all of the advantage for both sides, the benefit for YouTube would be immediate and obvious: Google would own a video competitor, ensuring at worst that they absorbed the profits instead of losing money at the level of the parent company, while ensuring YouTube will continue to enjoy First Class Citizenship in Tweets (and Twitter ads). Exploring new types of social apps and experiences, through internal development or acquisition, could also reap rewards.
Another possible area for growth already emerging for YouTube is Google Cast (the technology behind Chromecast), which helps give YouTube a path to the ‘Large Screen’ (and other connected media devices like audio systems), but despite reportedly selling over 10 million units in its first year, Chromecast and the Google Cast technology will need much wider adoption before it can truly represent a new revenue source, always assuming competitors for that big screen real estate don’t overshadow them.
Subscriptions could be another source of revenue as well as a moat against irrelevance; if the Subscription brings some benefit to the user (ad free experience; easier access to their favorite content; high quality and exclusive content, etc…), it will tend to increase direct engagement, pulling the user away from competing services like Facebook. Facebook drives a lot of incidental video viewing, as does Twitter, but neither drives the sort of purposeful seeking and viewing of content of a Netflix or Amazon Prime Video.
Change with the Times
Online video is no longer a novelty, explored by a few companies with vast resources and infrastructure or serving some hyper specific niche segment. For marketers and advertisers, it is important to explore new approaches without ‘falling in love’ with partners, products, and approaches that can be rendered irrelevant overnight.
Much as going ‘All In’ with YouTube left some people and businesses unprepared for the rise of native social video sharing, going ‘All In’ with YouTube, Twitter, Instagram, Vine or any other player risks you being left in the dust. Today, perhaps, Facebook is driving massive traffic to your videos, but what if tomorrow they decide it’s too much, and cut back traffic or raise their ad rates? What if, tomorrow, your YouTube video was shut down for some bogus DMCA claim? What if your huge Periscope debut coincides with the latest Twitter ‘Fail Whale’?
At the same time, Google itself must rapidly evolve to keep YouTube top-of-mind instead of being reduced to ‘that Google video thing’. They must explore new models for advertising, expanding reach, and controlling a larger share of the social video sharing, big screen viewing, and video subscription segment than their current efforts are achieving.
Related Post: Why Google+ Should Marry Twitter (April 16, 2012)