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Is YouTube Profitable? In the past, on Google’s earnings calls, the company has always held that YouTube was close to profitability, but on last nights call, executives were unusually evasive about how the largest video sharing portal in the world is faring: over the past many months, Google’s focus has been on display advertising: they’ve introduced new video formats and pushed display sales, with units like expansive ads on the homepage, promotional videos and ads within videos. In India, MediaNama readers will remember, the company clinched the IPL 3 contract, and used that to bring advertisers on to the website.

During the world cup, YouTube ran campaigns for major campaigns for advertisers. During the call, execs said that these are still early days for YouTube, and they have to keep trying to get quality video content and quality video advertising. Most advertisers coming on board with video ads tend to treat YouTube like TV, and forget two additional features – “YouTube allows you to interact with ads, which tv doesn’t not, and you can also do personalization,” Nikesh Arora, President Global Sales and Business Development for Google said. Google, incidentally, invested $100 million to win the lawsuit against Viacom, for copyright infringement due to unauthorised video clips of Viacom content on YouTube.

Android: Around 160,000 mobile devices are being activated daily (compared to 65000 a year ago), Google CFO Patrick Pichette said on the call. Interestingly, with smart devices like Android, Pichette suggested that there has been a disproportionate increase in mobile clicks. In works well into Google’s philosophy of increasing usage – Android is an accelerator, Jonathon Rosenberg said, and people search more now on Android than any other smart phone now. The company is focused on building the platform, getting more apps out.

The interesting thing here is that Android is not a huge investment for Google – devices are being manufactured by others – but it offers a formidable return. “From a cost side, it’s not material. The most popular app on these devices is a browser. Open platforms create the ecosystem where developers can create a whole set of apps. These new formats and phones create an entirely new set of activities.” The company added that mobile search is additive to desktop search, since and doesn’t cannibalize on that activity. People prefer desktop search. Android marketplace has over 70k apps. Google said that they will invest more in Android if the market wants more support. Our acquisition of admob, advertising is nascent for us.

Mobile Advertising

Arora said that there are different segments in mobile advertising in terms of cost-per-click to an advertiser: typically, “You see high CPC in transactions, but you don’t get high returns if you’re just just giving directions to a restaurant”
Rosenberg added that click to call tends to work well – clickthrough on ads are up 6% if you put a local number, and 8% if you put an address in the ad. Advertisers want sitelinks and click to call because they can track those.”

The company declined to comment on mobile clickthroughs versus PC: “What’s going to happen is that today on the mobile phone, people are less likely to consumate a transaction. To grow aggressively, we are going to require more commercial transactions on mobile. On display, adsense is doing very well. The display ad on a mobile device gets in your face, compared to a search based ad (so it works better for an advertiser).”

(later in the call) mobile usage will go up. “You would be able to walk into a store, able to scan a barcode, and determine if you can complete transaction online.”

– Brazil and India Growing, Impact on CPC: Brazil and India are growing rapidly in terms of search and clicks for Google. However, since CPC rates are lower in these markets, they put a downward spin on the average CPC across the globe, even though they contribute in terms of revenue.

Impact of Recession & Advertising Trends

Recession: The shift in advertising from offline, which is not measurable, to ROI driven advertising online too place in the recession. We saw a disproportionate fraction of budget spent on that during the recession. The ad format changes, also served to increasingly drive clicks. According to Arora, the company saw paid clicks move on account of the recession. “For us what is interesting is that people are searching and people are clicking. The products are also thus improving.”

What’s driving CPCs up? “I dont see anything from a user perspective. We are seeing conversion rates improving, which is driving CPCs up. The shift from Google.com from AFC (network) contributes to CPC, since owned and operated sites offer higher margins. The obvious thing that pushes it in the other direction are India, Brazil etc. People looking for longer tail queries for their campaigns that advertise lower.

Onmicom Deal, Audience Buying: Google will be working with Onmicom to add an advertising desk for bringing more and more brand advertisers online, focusing on integrated campaigns across display, mobile and search. Google said that more and more traditional brand advertisers are going online. The main focus of the partnership is going to be to address a shift in the market from site buying to audience buying. “Display buying is shifting to audience buying, from site buying. Advertisersw are looking for specific inventory on specific audiences across sites, across platforms, and currently they need to deal with different properties and networks for that. There needs to be a trading desk to allow advertisers to do that, so they don’t have to go to 7 different platforms or networks. “We’re working with Omnicom for the right trading environment to bring in efficiencies, where advertisers can buy across networks. There’s hundreds of millions of dollars in this deal”

China? Very little on the China deal: “We have our license renewed, but from a financial perspective, revenue from china is not material to our revenue. We had decent revenues for Q2. We don’t want to talk more due to the sensitive nature…”

Strategy For Acquisition

Talent, intellectual property, then price. We find teams of people that have clear leadership, and they have great engineering talent, proven that they have good IP, then there’s the price. Admob (has) great tech, great team, which integrates into our existing setup. If we cant find a fit, we don’t buy. Sometimes we talk, and then say no if there isn’t a fit. We do walk away if purchase price is too high

Related:
Google Reports $1.84 Bn Profit; QoQ CPC Up 2%, Paid Clicks Down 3%