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.