Is ink going to be the secret of YouTube's success?

Google Inc, seeking to show investors it can wring a profit from Internet videos, first has to show Hewlett-Packard Co its YouTube website can help sell printer ink.

Hewlett-Packard started a promotion in December enabling YouTube visitors to design a T-shirt based on videos. If the interactive program works and users click "print", Hewlett-Packard figures it will sell more ink cartridges.

Google has yet to turn a profit on the $1.65 billion it plunked down in 2006 to buy YouTube, more than 100 times the video-sharing website's annual revenue. New marketing formats, such as Hewlett-Packard's, may help close the gap and lessen Google's reliance on the Internet search ads that provide the bulk of its $16.6 billion in annual sales.

"Advertising on YouTube has not generated very much in the way of revenue, and I don't think they've quite cracked the code on how to do that," said Josh Bernoff, an analyst at Forrester Research Inc in Cambridge, Massachusetts. "YouTube has the potential to open up that brand awareness advertising bucket to Google."

Mountain View, California-based Google, the owner of the most used Internet search engine, leads in text ads that run alongside queries. The market for online video ads in the United States will balloon to $4.3 billion in 2011 from $1.4 billion this year, according to New York researcher EMarketer Inc, and may become more competitive if Microsoft Corp succeeds in its effort to purchase Yahoo! Inc.

Google fell 1 cent to $465.70 yesterday in NASDAQ Stock Market trading. The stock has dropped 33 percent this year, making it the seventh worst performer in the NASDAQ 100 Index.

While Google doesn't break out YouTube's sales, Credit Suisse analyst Heath Terry in New York expects the site to generate about $205 million this year, or 1.2 percent of total revenue, climbing in 2011 to $1.36 billion, or 3.5 percent. YouTube will show an operating profit by mid-2009, said Jeffrey Lindsay at Sanford C. Bernstein & Co in New York.

Founded in 2005 by former EBay Inc executives Chad Hurley and Steve Chen, YouTube became the most popular video-sharing site by letting users post homemade clips of dogs on skateboards and dancing babies.

Of the 9.8 billion videos viewed online in the US in January, a third were on YouTube, according to Reston, Virginia-based research firm ComScore Inc. The site has more US visitors than EBay or Amazon.com Inc.

Google started selling ads last year from companies such as Time Warner Inc in the lower part of videos. It lets advertisers rent part of the homepage for a day and allows websites to run YouTube videos and related ads alongside articles.

Hewlett-Packard has been among the first clients using other YouTube ad programs, including video spots. The site uses the tests to see what works and to show other companies how they can customize their campaigns, said Shiva Rajamaran, a product manager at YouTube in San Bruno, California.

A month after beginning the "Promote Your Video" T-shirt campaign, Hewlett-Packard started targeting people who defined themselves as video creators in YouTube profiles. About one in five who view the ad now download a T-shirt image, eight times more than before, Rajamaran said.

Hewlett-Packard is shifting marketing dollars to YouTube because it found video producers are more likely to click on interactive ads, said Daina Middleton, a marketing director at Hewlett-Packard. She wouldn't disclose the size of the YouTube budget.

Agencies

(China Daily 04/04/2008 page16)