Google still scratching head over YouTube profits

I’ve been hearing rumours to this effect for a while now, but yesterday Eric Schmidt confirmed that YouTube isn’t exactly throwing off oodles of cash. Reported here on News.com and here on Sillicon Alley Insider.

I wish this were not the case for two reasons.

Firstly, everyone with an interest in the startup ecosystem wants to see more top-dollar transactions like the Google acquisition of YouTube and that will only happen if a decent proportion of the ones that have happened to date are deemed successes. Following ebay’s Skype writedown it has become even more critical that Google finds a way to make YouTube work. This is a point I’ve made before and I’m making it again, because it is very important.

Secondly, Google’s ability to monetise Google’s video/social media inventory is a guide to what we will all be able to achieve on the other properties out there. If they can’t do it, I think it is safe to assume it will be very difficult for everybody else too.

Schmidt said the following about how they are addressing this issue:

We believe the best products are coming out this year. And they’re new products. They’re not announced. They’re not just putting in-line ads in the things that people are trying. But we have a number–and, of course, Google is an innovative place.  The Yahoo! team are trying various new forms of advertising, ones which are much more participative, much more creative, much more–much more interesting in and of themselves. Google believes that advertising itself has value. The ads literally are valuable to consumers. Not just to the advertisers, but the consumers.

I have been saying for a while now that there is a need for innovation in the online advertising world and in business models for consumer internet more generally. It will be interesting to see what they come up with.

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  • Bear Stearns estimates that 2008 revenues for YouTube will be $90 million, of which $22 million comes from InVideo advertisements. Using the Bizak Business Valuation Calculator (right) we can get a rough estimate of YouTube’s revenue valuation and EPV (Earnings per Visitor), which is the amount of money earned from each visitor to the site.
    If you divide the yearly revenues by 12 you get a rough monthly revenue estimate of $7.5 million. We then enter these numbers into the calculator. At this point we’re assuming YouTube has zero costs but in actuality we know this to be false.

    Based on the Bizak calculations YouTube has an EPV of $0.12 and a Bizak Estimate (business valuation estimate based on revenues) of $360 Million. This valuation is obviously a lot less than the $1.65 Billion Google paid for YouTube, however YouTube is a premium brand that must be (and was) factored into the purchase price.

  • nic

    Tks Bizak – some interesting data

  • nic

    Tks Bizak – some interesting data

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