YouTube Sees Dollars in E-Commerce
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YouTube, the world's most popular video-sharing site, will start to sell music and video games and experiment with new advertising formats to grow revenue, executives said on Tuesday.
The Google-owned business is taking the first steps toward building an e-commerce service through which it will sell music, films, TV shows, video games, books, concert tickets and other media-related products featured on the millions of videos on YouTube.
Visitors to YouTube.com can buy songs from music videos they watch on the site by clicking on buttons that take them either to Amazon.com's MP3 store or Apple's iTunes store.
YouTube users will also be able to buy video games, such as Electronic Arts's sci-fi game "Spore" through the Amazon (NASDAQ: AMZN) link.
Amazon and Apple's (NASDAQ: AAPL) iTunes will share revenue with YouTube when users buy content through the partnership.
Investors have been asking Google (NASDAQ: GOOG) when it would start to generate meaningful revenue and earnings from YouTube, for which the Web search leader paid $1.65 billion in 2006. Google does not break out YouTube's financials, but analysts at Piper Jaffray Research estimated that the video site would earn about $200 million in revenue in 2009, compared with estimates of around $27 billion for Google.
Until now, YouTube has mainly pointed to advertising sales as its main source of income. It is still experimenting with a range of formats to take full advantage of the massive popularity of the site, which has nearly 13 hours of video uploaded every minute.
YouTube had 330 million visitors in August 2008, according to comScore, which measures Internet audiences.
"There'll be lots of different solutions for lots of different problems," Shishir Mehrotra, YouTube's director of product management, said in an interview. "We've tested a lot of things already, and we're going to be testing more in the future. Some will work, some won't.
One format with which YouTube is experimenting is InVideo advertising, which runs text ads along the bottom of videos as they play. Other formats include contests sponsored by advertisers and home page video ads.
YouTube executives said pre-roll advertising, where a 10 to 20 second ad runs before a video starts, is not always the best format for some of the shorter video clips on YouTube. But they did not rule out using pre-roll ads altogether.
The company is also betting that its video ID system will help drive advertising. Video ID enables content owners, such as music and TV producers, to know when copies of their video clips are uploaded to YouTube by users, YouTube said. The content owners can then share in advertising generated around that copied clip.
The content owner could also use the video ID system to remove the videos.