One of the growing concerns with the businesses looking to invest in the social media phenomenon is whether such sites can actually generate substantial revenue. The key to portals such as MySpace, Bebo and the like is that they are free and allow anyone to access content.
For many, advertising appears to be an obvious route – the vast amount of information these sites have on its members allow marketers to target specific demographics with a greater deal of efficiency and relevance. However, as Facebook ‘s Beacon project showed, monitoring the usage of those that make the site successful is open to a great deal of criticism.
Video-sharing site YouTube, has also struggled to justify the huge investment made by Google, who paid a colossal $1.65 billion in October, 2006. However, the search engine giant has now announced that its main priority for the year is to better monetise its popular user-generated video site.
In an interview with CNBC, Eric Schmidt, chief executive of Google said that the main goal for the search engine is to make money from YouTube. It is obvious that Google’s stakeholders are well aware of the vast potential of YouTube, with Google’s shares rising as high as $584.86 (up 4.7 per cent) following the comments.
"I don’t think we’ve quite figured out the perfect solution of how to make money, and we’re working on that. That’s our highest priority this year," said Schmidt.
YouTube is planning to introduce a range of products aimed at generating revenue through advertising. The products will apparently go beyond basic in-line advertising (the text ads that run along the bottom of videos) that YouTube already runs. Schmidt expects the as yet unannounced products will be released before the end of the year.
However, this may prove difficult. According to media production company, Magic Lantern, Google faces an uphill challenge if it is to effectively exploit the revenue potential of YouTube.
"As a person trying to monetise user generated content, you have the three-pronged challenge of not knowing what type and quality of content will be generated, not knowing how popular it is likely to be and, lastly not knowing who’s going to watch it. The only way it works is if you have niche content such as cars or sport and then you stand a fair chance of overcoming the challenges," said Richard Ayers, MD of Magic Lantern.