• by Adam Singolda , July 25, 2012

YouTube generated ~$800 million in 2011 through its YouTube Promoted Video program.

A moment before Youtube made almost a billion dollars, it realized three things:

(1) UGC is a challenging traffic to build billions in revenue from.

(2) Having three billion video views a day on YouTube.com is a huge asset.

(3) Money is where the premium content is at (a la “content is king”).

YouTube connected the dots, and got many content providers and advertisers excited to join the YouTube boom. This is how the company did it while adding a billion-dollar line into its P&L, making us all fall in love (or did we?):

Step1: Get content on YouTube that advertisers would pay for. Major content providers, from the CNNs of the world to the WatchMojos of the world, signed up to have their content (or some of it) available on YouTube. It looks something like that – www.YouTube.com/user/cnn. That content on YouTube is obviously extremely monetizable, and YouTube gets rather aggressive as to who can sell it, YouTube or the content providers themselves (I hear it’ll allow you to sell your content on YouTube if you can bring a “ya-ba-da-ba-du” $20-pre-roll on the low end; otherwise, it’s YouTube’s to sell).

Step 2: Convert people who came to watch a “cat singing” video into watching a “CNN” video ($2 dollars into $20). YouTube is smart. It realized that its biggest asset is the fact that three billion times a day people go to YouTube to watch a video about a cat singing. Originally we all thought that means a ton of display advertising presented next to the singing cat. WRONG. Why run a video business like YouTube and end up being a massive display warehouse -- especially since display CPMs are trending down? Eureka ! Convert $2 into $20 by promoting “good content” next to people watching “less good content” and increase the monetizable traffic.

Step 3: Make money. If I had to guess, I’d say that YouTube’s main KPI shifted from the number of video streams a day (three billion) to the number of premium streams a day. Using this strategy, YouTube is not only making nice revenue, but it actually sits on top of the largest premium video catalog in the whole world. Now that’s a win.

When asked, I encourage a YouTube strategy. I think publishers need to first focus on educating users that they have video content. I find that the real bridge on the way to building a video business is, first, making people know you even have one. Whether it’s from YouTube, AOL Video, Boxee, or Roku, in the early stages it doesn’t matter. All publishers need to worry about is people realizing they have video content. At some point that should change, and publishers should also make sure that video becomes a real business -- one that they can control and sell high CPM ads against. Which mainly means – if users watch publishers’ videos on their own sites.

So when do we draw the line? When do we get concerned that Youtube’s SEO machine picks up users that are looking for us on Google? At some point? Never? Can we all live in peace?

I invite you to comment below and share your thoughts.