San Bruno: Facing more pressure to profit from its huge audience, YouTube is letting advertisers promote their commercial clips alongside the search results at the Internet’s most popular video site.
The system introduced on Wednesday channels a concept that has turned Google Inc., YouTube’s owner, into one of the world’s most profitable companies. And it gives Google a new way to try to profit from the $1.76 billion it paid to buy YouTube two years ago.
Just as they do at Google, advertisers can now tie their commercials to specific words entered into YouTube’s search box. For instance, a contractor might want to bid for the right to show a video ad when people search for home improvement clips.
The new platform, initially available only in the United States, also is expected to appeal to video creators who want to attract a larger audience to clips they have posted on YouTube.
Some clips that might not rank high in the primary results of a YouTube search theoretically could appear on the first page as a “sponsored” video if a bidder is willing to pay a high enough price for a click and offers compelling content.
Like Google, YouTube’s formula for deciding which sponsored results to display is based on a combination of factors primarily how much money an advertiser is willing to pay per click and how much interest the message has drawn in the past.
It’s easy for clips to get lost in the mix at YouTube, given that 13 hours of new video are being uploaded to the site every minute.
Google is becoming more aggressive about mining revenue from YouTube as it tries to realize a return from buying the video site.
Last month, for instance, YouTube began allowing advertisers to place a button under videos to offer viewers a chance to buy music, movies or other products featured in a clip. YouTube also is experimenting with ads that could appear before, during and after the professionally produced TV shows and movies that can now be watched on YouTube.
Although it attracts more than 300 million worldwide users, YouTube hasn’t delivered a big payoff for Google yet much to the frustration of impatient investors.
And Google could definitely use an additional lift, even though the Internet search leader’s revenue has climbed 37% so far this year.
As the economy heads into what’s expected to be its deepest recession in a quarter century, analysts are convinced Google’s growth will decelerate dramatically - a concern that has caused the company’s stock to plunge by 58% so far this year. Google shares fell below $300 for the first time in more than three years Wednesday to close at $291, down $20.46, or 6.6%.
Google doesn’t break out YouTube’s contribution to its finances, but Collins Stewart LLC analyst Sandeep Aggarwal estimates the video site will generate $180 million to $200 million in revenue this year. That’s just 1 percent of Google’s projected revenue of about $20 billion this year.
But Google Chairman Eric Schmidt has promised it won’t be much longer before YouTube comes up with an approach that will encourage advertisers to substantially increase their spending on Internet video commercials.
Most analysts also have high expectations. The research firm eMarketer Inc. estimates US advertisers will be spending $5.8 billion on video ads in 2013, up from $505 million this year. Aggarwal predicts YouTube’s revenue will double next year to about $400 million.
Even if video advertising takes off, it will still be far smaller than Google’s bread and butter, the search advertising market. EMarketer expects that market to more than double in the United States during the next five years to $23.8 billion.
YouTube’s search-driven ads seem unlikely to make as much money as Google’s, partly because fewer people are looking to buy things when they visit YouTube.
Some advertisers also might be reluctant to have their messages shown alongside YouTube results for fear of being displayed along some risque or wacky content that could hurt their brands, said Forrester Research analyst James McQuivey.