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To Become A Grown-Up Business, YouTube Needs To Attract Grown-Up Viewers

The online video platform remains unprofitable, despite an audience of billions.

To Become A Grown-Up Business, YouTube Needs To Attract Grown-Up Viewers
[Photo: Flickr user Sue Schmitz]

Young kids loop through their favorite Minecraft animations. Tweens follow makeup tutorials and play Taylor Swift music videos at full volume. But grown-ups–what in the world do grown-ups watch on YouTube?

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Not much, and that is a huge part of the reason the online-video platform remains unprofitable, nearly 10 years after Google acquired it for $1.65 billion. According to the Wall Street Journal, YouTube finished 2014 at “roughly break-even,” despite increasing annual revenues from $3 billion to $4 billion.

“There’s a perception that YouTube is punching below its weight,” Ynon Kreiz, CEO of YouTube content producer Maker Studios, told Fast Company last year.

Analysts previously estimated YouTube’s 2013 revenues at $5.6 billion. If the Wall Street Journal‘s source is correct, that analysis was off by $2.4 billion.

For YouTube CEO Susan Wojcicki, who joined Google as employee No. 16 and has been in her current role for a year, the pressure is mounting to transform YouTube into a advertising magnet on par with leading TV channels without losing the DIY spunkiness that has set the platform apart.

“Traditional content, I think it works on YouTube,” Wojcicki previously told Fast Company (read our magazine feature about her efforts to reboot YouTube here). “I don’t want to say it doesn’t work, but it doesn’t always take advantage of the fact that it’s a new and different medium.”

That’s just one of the many lines that YouTube must carefully walk. Others abound: Maintaining the site’s broad reach among children, without alarming privacy-protective parents; ensuring that YouTube’s stars feel fairly compensated, without compromising Google’s share of ad revenues; and redesigning the site as a destination in its own right, without alienating the publishers who rely on YouTube for video embeds and hosting, to name a few.

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Step-by-step, YouTube has been laying the foundation for a profitable ad business–introducing Nielsen metrics in 2013, allowing advertisers to place their content alongside specific shows in 2014, and now starting to experiment with subscription models that would monetize the platform’s most loyal viewers. But with Facebook and other competitors moving more aggressively into the video space, Wojcicki and her team will need to move faster than they have in the past to develop consumer and advertiser products.

The good news for YouTube is that its reach is near-impossible to match: On a typical day, the site attracts a billion users around the world, and in a typical month, over 80% of U.S. Internet users watch a YouTube video.

But given YouTube’s need to cultivate older audiences–older meaning of legal driving age–it’s curious that Wojcicki chose to kick off 2015 with, of all things, a kids-only app. Its design differs in significant ways from YouTube’s main website, raising the possibility that Wojcicki and team are using the app as an experiment that could extend to channels of interest to adults. In the app there are no view counts–and as FastCo.Design’s Mark Wilson notes, no tiresome, all-caps exhortations to like a video or subscribe to a channel as a result. Plus, YouTube controls the featured content, putting it in the position of curator for the first time.

Changes like those could win over advertisers, but at the same time prove an anathema to YouTube’s content creators. “Creators are the essence of YouTube,” Wojcicki says. Before long, big-budget brands will have to be, too.

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About the author

Staff writer Ainsley (O'Connell) Harris covers the business of technology with a focus on financial services and education. Follow her on Twitter at @ainsleyoc.

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