The de facto home for online videos for nearly a decade has been YouTube. Under the umbrella of Google (NASDAQ:GOOG) (NASDAQ:GOOGL), YouTube grew from 100 million videos views per day to more than 4 billion video views per day. In November, more than half of the entire U.S. population watched a video on YouTube.
But YouTube faces some steep competition in 2015. Facebook (NASDAQ:FB) overtook YouTube for total video views on desktops in August when the Ice Bucket Challenge dominated users' Newsfeeds. Not to be left behind, Twitter (NYSE:TWTR) announced at its analyst day in November that it planned to add more user-generated videos to its platform.
Facebook has shown it's possible to grow a video service to compete with YouTube. But with one-quarter as many active users as Facebook, can Twitter compete with the two Web giants for a space in this rising market?
Starting with the advertisers
Twitter already offers advertisers the option to use native videos to share their message with the world. Twitter claims the advantage of using native video over an embedded YouTube video is that more users engage with native video.
In fact, Twitter has taken the opposite approach to video as Facebook. While Facebook has quickly grown its native video uploads from users, it has been slow to roll out video advertisements on the platform. Twitter, comparatively, is using brands and other high-quality content (for example, NFL highlights) to introduce video to users' timelines first, before providing users with the tools to easily upload their own videos.
Considering that Twitter is more of a broadcast network compared to Facebook's social network, the approach makes sense. Ultimately, both companies look to be moving toward the same goal with video -- enabling users to upload videos and monetizing the platform through advertising.
YouTube has mastered monetizing its video content. It allows brands to reach a broader audience with their videos, similar to the ways in which Twitter and Facebook's video ads work. Additionally, YouTube inserts pre-roll ads in front of videos and splits the revenue with the video creators.
Facebook has not yet figured out how to monetize its user-generated content, and Twitter is building up a list of advertisers before significant amounts of user-generated video hit the platform.
One area Twitter can attract more video
Twitter has one advantage over Facebook and Twitter when it comes to attracting video uploads. Twitter is commonly where news breaks, and often the place people turn to find information about that breaking news. As a result, uploading videos to Twitter "from the scene" is more likely to get views than doing so on YouTube or Facebook.
Beyond news, however, Twitter's appeal falls below that of YouTube and Facebook, where people go for entertainment -- which describes the vast majority of online videos.
News videos could still be extremely valuable for Twitter, as viewers will often wait through an ad to see that content. Part of Facebook's struggles in monetizing its video content is that it provides a passive autoplay feature in users' Newsfeeds, which means pre-roll ads often are not seen. Twitter would rather attract videos that people seek out, instead of pushing them on its users -- although I'm sure it will do that, too.
Twitter can also use videos to monetize its 500 million-plus viewers who never log into the service. Playing pre-roll ads based on video context, the website a user is coming from (or is currently on if the tweet is embedded), or other cookies or mobile app information, could help the company hit CFO Anthony Noto's goal of pulling in an extra $1.3 billion annually from logged-out visitors.
All said, U.S. digital video ad spending is expected to reach $7.8 billion this year. If Twitter can use user-generated content to grow its share to just 2% of the market, video ads alone could represent about 10% growth from 2014's expected revenue. But Twitter will be battling Facebook, YouTube, and wealth of other competitors for those ad dollars.
Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google (A shares), Google (C shares), and Twitter. The Motley Fool owns shares of Facebook, Google (A shares), Google (C shares), and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.