YouTube, the Moneymaker

I think Google (Nasdaq: GOOG  ) just figured out how to make money from YouTube: Help other companies advertise their wares without annoying the video site's viewers and consumers. This willingness to cooperate is one of the biggest reasons why I believe Google will grow far beyond the Internet.

Google has tried all the usual tricks to convert video displays into cash cows, like small ad banners beside the video window or brief interstitial ads before showing the content you wanted. But that hasn't translated into big bucks, and keeping YouTube's data centers and high-traffic Internet connections running might cost more than the $100 million or so YouTube's current money-making strategies pull in this year. It's the same story if you look at Microsoft's (Nasdaq: MSFT  ) MSN Video or Yahoo! (Nasdaq: YHOO  ) Video, or any of the other usurpers to YouTube's throne.

So here's Google's secret sauce. Music draws a lot of eyeballs onto YouTube. Six of the 10 most-watched videos of all time are straight music videos, including 104 million views of the very top pick, Avril Lavigne's "Girlfriend." Now, you can use YouTube as your personal and almost limitless music player, but you're stuck in front of a computer if you do. So you want to be able to download the songs and transfer them to your iPod. Now Google makes that easy for you by placing unobtrusive but easily accessible links directly to the Amazon.com (Nasdaq: AMZN  ) MP3 store and Apple (Nasdaq: AAPL  ) iTunes on the video watching page.

YouTube marketing manager Jenny Nielsen confirmed that Google takes a cut of the sales that start with such a link, though she wouldn't tell me how much. It's OK, ma'am. It's the principle that counts. Making a little bit off every lazy user adds up to a lot over time.

Still not impressed? Keep in mind that this is just the first example of YouTube growing into a full-fledged e-business platform. Content creators like Walt Disney (NYSE: DIS  ) or Viacom (NYSE: VIA  ) can claim ownership of the user-uploaded videos they used to want removed and add some cash-generating shopping links to them. You like this Colbert Report clip? Anything you can download or order online is potentially fair game for this fledgling retail channel.

Make it work, OK? Good luck, Google.

Further Foolishness:

Microsoft is a Motley Fool Inside Value pick and Google is a Rule Breakers recommendation. Walt Disney, Amazon.com, and Apple are Stock Advisor recommendations. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund owns shares in Google and Disney, but holds no other position in any of the companies discussed here. Anders is not Tim Gunn from Project Runway, but he did stay at a Holiday Inn Express one night. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On October 09, 2008, at 2:17 PM, Mizzouglen wrote:

    This sounds like it could finally be the advertising breakthrough that youtube needs. I'm still not entirely sold on it, however. I think companies are still going to lean their advertising dollars towards sites with vetted content like hulu.com, abc.com, and newsy.com

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