How YouTube Turned Into a Real Business By Making Ads Optional

From my story in MIT Technology Review:

In 2008, when Shishir Mehrotra joined YouTube to take charge of advertising, the booming video-sharing service was getting hundreds of millions of views a day. ­YouTube, which had been acquired by Google in 2006, was also spending as much as $700 million on Internet bandwidth, content licensing, and other costs. With revenue of only $200 million, YouTube was widely viewed as Google’s folly.

Mehrotra, an MIT math and computer science alum who had never worked in advertising, thought he had a solution: skippable ads that advertisers would pay for only when people watched them. That would be a radical change from the conventional media model of paying for ad “impressions” regardless of whether the ads are actually viewed, and even from Google’s own pay-per-click model. He reckoned his plan would provide an incentive to create better advertising and increase the value for advertisers of those ads people chose to watch. But the risk was huge: people might not watch the ads at all.

Mehrotra’s gamble paid off. YouTube will gross $3.6 billion this year, estimates Citi analyst Mark Mahaney. The $2.4 billion that YouTube will keep after sharing ad revenue with video content partners is nearly six times the revenue the streaming video service Hulu raked in last year from ads and subscriptions. And that suggests Mehrotra has helped Google solve a problem many fast-growing Web companies continue to struggle with: how to make money off the huge audience that uses its service free.

In 2008, Mehrotra was working for Microsoft and hankered to have his own startup, but he agreed to talk to a Google executive he knew about working there instead. He decided against it—but that evening he kept thinking about how the exec was frustrated that most ad dollars go to TV, even though nobody watches TV ads. Yet at his Super Bowl party two weeks earlier, Mehrotra recalled, guests kept asking him to replay the ads. Was there a way, he wondered, to make TV ads as captivating as Super Bowl ads, every day?

The answer came to him in a flash. …

Read the complete story in MIT Technology Review.

Why Google May Be Secretly Happy That Apple’s Dropping Its YouTube App From Next iPhone

From my Forbes.com blog The New Persuaders:

OK, so Apple will drop its YouTube app from iOS 6, the new version of its iPhone operating system due out this fall. Cue loud and histrionic coverage about Apple’s thermonuclear war, as the late Apple cofounder Steve Jobs put it, vs. Google and its Android mobile software.

Except it seems likely that script is off the mark. Here’s why: Most people may not realize it, but that YouTube app on their iPhones is actually designed by Apple, a holdover from the iPhone’s introduction in 2007, when all the apps were Apple’s and YouTube was a big draw. (So big that one of Apple’s original iPhone ads highlighted YouTube, as in the video above.) Problem is, since then, Apple has appeared to do relatively little to advance the app, which now looks old (almost as old as that TV used in the app’s icon, at least on my impossibly old iPhone).

Even more important from the point of view of Google and the pro content producers on YouTube, the Apple YouTube app doesn’t allow ads to be run against all those billions of videos views a month that YouTube draws on mobile devices. So search for “Lady Gaga” on your iPhone and what do you see? Well, Lady Gaga, but very little from official channels such as ladygagaofficial, which means very few official videos. Contrast that to a search on “Lady Gaga” on YouTube.com, and official videos are there, along with ads all over the place.

Why the huge difference? Because she can’t run ads on the iPhone YouTube app, and no ads means no money generated. Multiply that by thousands of artists, movies, and all kinds of content that advertisers want to run ads against–ads that will bring in up to $3.6 billion in revenues this year, by Citigroup analyst Mark Mahaney’s recent estimate for YouTube. Now you realize why Google may not mind much that the creaky old adless Apple app is heading for the trash can icon.

Read the complete post at The New Persuaders.

Why Google’s Nexus 7 Tablet Is Hotter Than Apple’s iPad

Cross-posted with some changes from my Forbes.com blog The New Persuaders:

For once, an Apple product isn’t the hottest piece of hardware on the scene. This week, at least, that highly enviable status goes to Google’s new Nexus 7 tablet.  According to reports, several retailers are sold out of the 7-inch tablet, and even Google’s own online store only has the cheaper, $199 8-GB version. The $249 16-GB version is no longer available anywhere except on eBay for a steep premium.

Of course, you have to remember that selling out doesn’t mean much without knowing how many sold out. This is a classic Apple ploy, though to give Apple credit, it usually turns out later that it sold a ton of whatever sold out. No matter, selling out a product shortly after its release still works great as a marketing tool, as you can see from the coverage gushing about “incredible demand.”

But Google deserves credit for more than just marketing. Now that I’ve tried it for several weeks, with a model provided temporarily by Google at its I/O developer conference, I can tell you why the Nexus 7 is the latest hot gadget:

* It looks and feels, to use the technical term, slick. The fact is, Apple’s products have a look and feel that few can match, and even the Nexus 7 doesn’t quite get there. But it’s pretty damn close. It feels substantial, while substantially lighter, of course, than the iPad. The swiping is very smooth as well.

* The 7-inch size is appealing and convenient. It’s easy to hold it in one hand, while swiping with the other. It also fits in a pants or shorts pocket (or purse, I’m guessing) surprisingly well for temporary transport. So I end up taking it more places than my larger tablet.

* The screen is no Retina like the latest iPad, but it still looks sharp and bright.

* It may not have all the apps, or some of the latest and greatest, that Apple has, but it’s got plenty. And some very nice ones, too, such as Flipboard and my current favorite, The Night Sky.

* Almost forgot–it’s cheap! For $199, it’s less than half the current $399 minimum for an iPad. That makes the Nexus 7 close to an impulse item, or at least a gift that won’t break the bank.

* Uber-reviewers Walt Mossberg of the Wall Street Journal, David Pogue of the New York Times, and even Apple fanboy/Google hater MG Siegler, himself, all like it. So does almost everyone else.

For all that, I can’t help mentioning the downsides. The default screens are a mess of apps, My Library (which features an Esquire cover of Bruce Willis that I really don’t want to see anymore), and recommended apps and magazines I couldn’t care less about (Country Weekly magazine? Really?). You can change the app organization, but at the outset, it’s haphazard, making it hard to find some basic ones at first. In particular, the nondescript icon for Google Play, which seems really key to Google’s ultimate success at mobile devices and apps, doesn’t suggest an app store. And who besides us Google watchers know that “Google Play” is an app store anyway?

As many have noted, there’s not much content in its Google Play store. But that means little to me because I’m a Netflix subscriber and can watch using the Android App. There’s also a Hulu Plus app. (But not Amazon Instant Videos via my Prime subscription, at least not without browser tweaks few will want to bother with; that may be a deal-killer for big Amazon video fans.) The device doesn’t have a rear-facing camera. Since I’m not using a tablet to take photos (partly because, in what is a weird omission, there is no built-in camera app), and since Skype is one of the killer apps as far as I’m concerned, the single front-facing one works fine for me. It’s WiFi only, though again, I wouldn’t pay for another monthly data plan anyway. And with only 8 or 16 GB of storage, you better be comfortable storing most of your stuff in the cloud (I am).

Finally, there’s apparently a problem with the touchscreen, though I haven’t run across it yet, that’s especially a problem for playing games. My own minor complaint about the screen, which I haven’t seen mentioned in reviews I’ve read, is that it’s just a tad too small, or at least the border around the screen is. It’s hard to pick up along the side, because too often I end up touching an icon and launching an app or stopping a video when I don’t want to. The recessed side buttons are a little hard to reach sometimes, too. These are quibbles, though.

Meanwhile, it looks like Apple is readying its own smaller iPad for under $300. That could well steal the Nexus 7’s thunder–especially since it almost certainly will do two or three things better than the Nexus 7 because it’s Apple and because it will be newer.

But for the next few months, at least, Google has a bona fide hit on its hands. And for all the right reasons, not just manufactured scarcity.

Read the original post at The New Persuaders.

A Glimpse Into the Future of Television

If there’s one thing that struck me while I was researching an article on the future of television for Technology Review, it was all the fake living rooms. Google has one. So does Roku. So do LogitechSezmi, and Intel (which I believe has several in different states). I’m sure I missed a dozen more. It’s a sign of how important television, the star of living rooms real and faux, is to tech companies as they look to tap into the technology and media riches of the last great mass medium.

They’re all trying to figure out how to meld the medium they know–the Internet–with the one they hope to revolutionize: television. Yet with little native knowledge of television, Silicon Valley firms must troop consumer after consumer into these cozy little corners of their corporations and observe how people watch television and how they respond to their many efforts to bring the Web to the screen watched on average five hours a day. Even now, these companies are still struggling. Google, for instance, just told several consumer electronics manufacturers to hold off on planned launches of Google TV products at the Consumer Electronics Show in early January.

At the same time, the television industry has a lot to learn, too. Like the music industry, they’re in many cases fighting to keep too many people from watching television entertainment online, because that could damage their lucrative business models. But while they may have more leverage against the Internet hordes than the music industry had, thanks to both those business models and the durability of the TV experience for viewers, they don’t know any more about the Internet than the tech companies know about TV. Ultimately they will need to give viewers more flexible ways to view their content, or someone else will.

At this point, honestly, it’s tough to know how this volatile mix of TV and Net will shake out. I know, because I asked a whole lot of experts in both, and it was kind of amazing how uncertain nearly all of them are about what will happen even a couple of years from now. I hope to have provided some insight into how things could play out, but the uncertainty about what’s coming next in television is what I find most interesting: Whatever comes of this clash of two great mediums is going to surprise us all.