YouTube’s three second pre-roll and some thoughts about monetisation

YouTube is starting to get serious about monetisation.  As reported by Fred Wilson and the BBC they will be doing things like adding 3s pre-roll ads to videos and and using audo fingerprinting to prevent copyright theft.  Getting clean(er) from a copyright point of view is an essential pre-cursor to making money – if there is cash to go after and you are using stuff you don’t have the right to use you will get sued.  This explains the spate of deals YouTube did with content owners around the time of the Google acquisition.

They are also planning rev share deals for the people who upload the content – or at least those of them that own all the copyright (which is where the audio fingerprinting comes in).

There is a link to a good interview with Chad Hurley on Fred’s post and the BBC post has quite a lot of detail about what the plans might be.

For me it is great to see that they are getting serious about monetisation.  VCs have re-written the rulebook with many consumer internet investments over the last couple of years – and there have been some great successes – Skype and YouTube standing out as the biggest.  The awesome thing about those two companies is that they got from start-up to well over $1bn realised value in under two years and under one year respectively.  That is value creation at a pace we have never seen before.

It is the pace of value creation that has changed the rules of the game for investors.  There are two contributing factors here – the speed at which huge user bases can be built and the willingness of companies like Google, Ebay and News Corporation to place a large value on businesses that have huge user bases but have yet to prove they can monetise.

The Skype and YouTube deals were great news for the consumer internet ecosystem – VCs and entrepreneurs alike – but as an industry we are all about building big successful businesses and monetisation has got to be the most important part of that.  Big exits are fantastic, but at the end of the day they are a sideshow to the main act of building great companies.

The success of MySpace in monetising it’s user base after the News Corp acquisition has been great to see.  I have heard estimates for 2006 revenues of $280m and the $900m deal with Google bodes well (if anyone has seen a good write up I’d love to know).  Now hopefully YouTube will go on to do as well or better.

ebay is not doing so well with it’s Skype acquisition, so in a way it is even more important that YouTube justifies it’s price tag (or somewhere near it).  They will face some challenges – selling new advertising formats is always tough and it will be interesting to see how a 3s pre-roll goes down – but they have a great track record so far and hopefully we will soon start to hear some big numbers for 2007 YouTube revenues.

If not we may be re-writing the rules again.