• by Ashkan Karbasfrooshan , Op-Ed Contributor, September 20, 2010

In the past, we've looked at how YouTube can generate more revenue and what Facebook can expect as it wades increasingly into online video.  Today, we'll look at Yahoo in the context of the rumor that the Sunnyvale-based company is gunning for 1 billion users and $10 billion in annual revenues within three years, or 2014. 

With 622 million users and 2009 revenues of $6.5 billion, Yahoo will have its work cut out for itself.  While it can accelerate its march to 1 billion users through acquisitions, the road to $10 billion in revenues will no doubt have to come through video advertising.

Yahoo is no stranger to online video: its video portal at video.yahoo.com is a top 10 video destination.  It downright invented Media RSS (MRSS), which is the backbone of most video syndication and discovery today, and was obviously ahead of the curve with the purchase of Broadcast.com back in the day (way back).  Being ahead of the curve isn't always a good thing.  The action is ahead of us now.

In the U.S., online video advertising was a $1 billion industry in 2009, according to eMarketer.  The number will grow 49% this year, and should hit $5.5 billion in 2014.  That's just in the U.S.; double that amount to guesstimate global figures: so by 2014, global online video advertising will represent a $10 billion industry. 

If Yahoo is serious about hitting its rumored target, then it needs to first reverse the revenue slide it experienced from 2008 to 2009: from $7.2 billion in 2008 to $6.5 billion in 2009.  But as everyone knows, the wheels came off the economy in the tall of 2008 and the first half of 2009 was slow, even for online media.  However, as things stabilized and the advertising dollars came back, online won more battles than it lost -- and online video in particular outgrew everything else including search and social media.

Without a doubt, search continues to garner the lion's share of online ad dollars, and Facebook's explosive growth has allowed it to galvanize its share of social networking ad dollars, but the fight for online video ad dollars remains wide open despite YouTube's stranglehold of video views in the U.S., with 43.1%, according to comScore.

Who Can Really Take on YouTube?

By now, everyone knows YouTube's challenges:

-        Overreliance on user-generated content

-        Facing advertisers' aversions

-        Hesitance of traditional media companies to license their content with YouTube

-        And frankly, the fact that while YouTube in aggregate generates the most views and outdraws its competitors, it is challenging to drive a lot of views for a given video due to the sheer clutter on the site.

This is where Yahoo can pose a considerable challenge to YouTube -- if it weren't content to remain on auto-pilot instead of shifting out of cruise control.

Yahoo has relationships with practically every advertiser in the world -- but more important, Yahoo remains the world's No. 1 portal.  Outside the echo chamber, that has a lot of value and traction.

Largest Video Sites Will be Aggregators

By now we see that aggregators will become the dominant video sites when measured in traffic. But the reality is that the vast majority of these aggregators will be challenged on revenue and profits.

In fact, many aggregators will also have their share of UGC and pirated content, meaning that their monetization will be slow and arduous.  Yahoo is somewhat immune to that. It owns 1) distribution; and has the 2) monetization down pat.  When it comes to 3) content, Yahoo has been both an aggregator and creator of content.  It licensed articles (usually for 30 days, which hurts its SEO mojo) and over time began to dive increasingly into original content.  With video, it has created a number of series and has licensing deals with numerous companies.

Content licensing costs are analogous to traffic acquisition costs (TACs) in search: they reduce profit margins.  Where things differ is that Yahoo can avoid these by creating videos in-house, which explains why more and more companies are betting on content, from Break Media to AOL.  But before it worries too much about profit margins, Yahoo needs a game plan to ramp up revenues, and that is where online video comes in.

It is obviously too early to tell what Yahoo intends on doing, but any way you dice it, for Yahoo to hit 10 billion in annual revenues within three years, it will have to get far more serious about video.