Friday, August 24, 2007
Research Note: The (Coming) YouTube Jackpot
Lots of noise about YouTube's new overlay ads' revenue potential.
Henry Blodget takes down Mary Meeker, for example, here.
Both Henry and Mary's models are too simplistic - and at the same time miss the larger strategic point.
That point is that there is a very (very) large demand from advertisers for branded ads. Google (cleverly) is selling YouTube ads on a cpm, rather than cpc, basis; this will let them maximize revenues in the near term.
Our estimate is that YouTube ads will scale to the low hundreds of millions within the first few quarters, without much hassle. These revenues should grow aggressively.
Google's real strategic move here, though, isn't about near-term revenues - it has to do with building a platform for experimenting with next-gen branded ads.
Overlays are a very small - and very low value, at $20 CPM - step in this direction.
For example, our analyses suggest that next-gen branded ads, at maximum productivity, should achieve CPMs of > $100.
In other words, there is a (lot) of potential upside - at very little risk - that the Street isn't fully factoring in.