YouTube (GOOG) has been nibbling around the edges of the television industry’s $60 billion lunch for some time now. Last night The Information reported that Susan Wojcicki is the candidate likely to take over the video site; Google has neither confirmed nor denied the report. In any case, the challenges for the head of YouTube are clear: The site is one of Google’s biggest opportunities to make billions in ad dollars without convincing users to do something differently than what they’re already doing.
Most Internet companies are lusting after the money spent on television ads and hoping online video can lure brands. No venture is in a better position to do this than YouTube, which dwarfs any other online video site in terms of videos watched. In the last three months of 2013, people in the U.S. watched about 725,000 minutes of online video, according to ComScore. Almost 30 percent—more than 200,000 minutes—of that time was spent on YouTube. Google also says daily watch time grew by 50 percent. The second-largest online video destination was Netflix (NFLX), with about 5 percent of the market.
As a result, YouTube makes up about 20 percent of the overall online video ad market and drew $5.6 billion in ad revenue last year, according to EMarketer. Yet Nikesh Arora, Google’s chief business officer, told investors last week that the video site is in its “infancy in the amount of advertising they can support, vis-à-vis the amount of usage we’re getting.”
The job now is to get YouTube to grow up. In a way, Wojcicki is an ideal choice, given her deep experience in advertising. But she’d have to help Google develop some new muscles. Google’s dominance in online advertising is based on search, a transactional game: Someone starts searching for airline tickets, and airline companies want their ads showing up at that moment in hopes that people will buy something immediately. Video ads are about branding, an arena in which success is harder to measure and habits are deeply ingrained. After all, advertisers just spent some $300 million on Super Bowl ads people promptly forgot.
Algorithms won’t solve this one. Google and other online video companies have to go through the messy, human process of convincing advertisers and the agencies that control their budgets to take money away from television and put it into online video. But old habits die hard, according to Paul Sweeney of Bloomberg Industries. “They’ve been buying ads at CBS (CBS) for 50 years, and you have to convince them to shift their dollars,” he says. Google has begun implementing various aspects familiar to television advertisers at YouTube, such as adding Nielsen’s (NLSN) measurement, which Arora described as “table stakes.”
To woo advertisers, Google must also win over those who make the content to advertise with. Skepticism remains among traditional brands about placing advertising next to homemade videos full of feline hijinks and copyright violations. Part of Wojcicki’s job will be to expand existing efforts to get professional-level content on YouTube, whether that’s by airing original shows, as Netflix and Amazon (AMZN) have done, or by pursuing deals with well-known content providers such as the NFL. There’s also the issue of keeping one-man-band content makers happy, which means helping them eke out livings under increasingly difficult circumstances.
