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One week before Google (GOOG) acquired YouTube, I wrote "No Doubt About It, YouTube wildly profitable". In the post, I explained that if they so desired, YouTube could generate roughly $7M per month running ad networks. The next week, Google bought YouTube for $1.65B in stock. Google’s stock rose by $10B in the few days leading up to the deal.

As the ink dried, YouTube began running ads from the same networks we recommended. We’ll chalk this up to a mere coincidence. Alas, today, while many criticize Google for being a one-trick pony by generating 99.9% of its revenue from search ads, someone should point out that Google now has a display/ branded ad strategy that it's executing it on YouTube.

It might be simply to run ad networks, but every time I go back to YouTube, the quality of ads (it might still be from networks) improve. With some 100M streams per day, and 1 video per page, and 1.5M imps per page (some pages have 2 ads per page, others 1), and at least 50% of videos streamed on YouTube and not on blogs and other sites, Google is now making a lot of money from the ad networks.

This is why it has not yet run Ad Sense, because like we pointed out in "Did Google overpay for MySpace’s search business click-through rates on social media sites are low, and Google needs no help with penetration of Ad Sense, though it needs help with display / banner ads. When we ran the numbers on “How Much Can Google Generate on YouTube with Ad Sense the numbers were low.

While everyone assumes that YouTube will start running pre-rolls - and it’s possible it will one day on some sections - YouTube’s first area of help for Google is to give is a play on display ads, which hitherto Google has yet to profit from.

Look for an increasingly growing contribution from branded ads in upcoming quarters.

GOOG 1-yr chart:

Source: Google’s Branded/Display Advertising Strategy in One Word: YouTube