NEW YORK (AdAge.com) -- YouTube is the world's No. 2 search engine -- behind only its parent company's search engine, Google.com -- but does that mean it can monetize like one?
The difference could decide whether YouTube becomes a mildly profitable media business based on home-page ads and video campaigns, or if it can scale like Google search, tapping a world of small advertisers using self-serve tools to bid on keywords.
Harnessing video search is the latest focus for YouTube, under the gun to contribute meaningfully to Google's bottom line. Over the past year its home page became as close to a must-buy as exists on the web for entertainment advertisers, and inventory was sold out in the fourth quarter. Additionally, YouTube has also tried -- with limited success -- to ink deals with the studios for premium TV and movies, and it forged a deal with Universal Music Group and Sony Music Entertainment to power Vevo, which theoretically will bring in more brand ad dollars attached to music videos.
But while brand advertising attached to premium content can be a fine business, it isn't very Google-y, which built its fortune -- and enviable margins -- on the long tail of advertisers using Google's self-serve tools to buy search ads. Indeed, the vast majority of Google's $23.6 billion in 2008 revenue came from search advertising. Meanwhile Barclay's analyst Douglas Anmuth estimated YouTube would turn profitable in 2010 on $700 million revenue.
Promoted videos, the equivalent of a search ad on YouTube, were launched in 2008 and integrated into AdWords in October, meaning search advertisers could easily move campaigns to YouTube. In December, YouTube launched a tool allowing advertisers to target specific content, viewer age or gender or categories like politics or fashion.
While on Google, the purpose of a search ad is to get a click-through or a conversion to a particular site; on YouTube, it is to generate a video view, which can also lead to a click through to a site but it may not. YouTube said "hundreds of millions" of searches are conducted each day on the site.
"Obviously, we think Promoted Videos is a great way for small businesses to tell their stories and reach customers with video in a scaleable way," said YouTube monetization chief Shishir Mehotra.
YouTube has been working hard to put those tools into place and early signs are it is getting some search advertisers to buy campaigns on the video site. The site keeps a tight lid on revenue, but told Ad Age that "thousands" of advertisers are using self-service tools to advertise on YouTube each day. In the fourth quarter, paid clicks on promoted videos doubled from the prior three months.
"You have to look at this beyond simply driving direct sales; it's more of a branding campaign," said Steve Groenier, VP-marketing for art-supply direct marketer ArtBeads.com. Mr. Groenier started buying terms such as "how to make jewelry;" making sure his company's how-to videos turned up in search results. Because ArtBeads.com is spending on YouTube, they get to add overlay ads to their videos that click through to their site.
But while Google and YouTube must court P&G and its ilk to sell brand advertising, making YouTube a search business means going after a different type of marketer -- one like tiny Utah startup Orabrush, which makes a patented tongue scraper, a so-called miracle cure for bad breath.
Orabrush started out with a $100,000 infomercial that bombed on TV, but then fresh-out-of-business school CEO Jeffrey Harmon decided to start running cheeky, webby infomercials on YouTube against terms such as "bad breath." Of the 7.8 million views on YouTube, 6 million came from paid conversions since it started placing ads in August. As of this writing, Orabrush was the No. 1 result in paid results and No. 2 in natural search to a Howcast video with "Bad Breath Test: How to tell if your breath stinks."