Why Does Social Media Fail to Generate Revenue?

YouTube is not making meaningful revenue for Google (GOOG), according to SAI.

News Corp's (NWS) MySpace, Facebook and their ilk are trying many things, but none of them are working when it comes to scaling revenues, according to USAToday.

This year:

• YouTube will make $100 million in revenues.
• MySpace will make $700 million to $800 million, with FIM (which includes IGN) making $900M in all.
• Facebook will make $300 million.

How does this stack up against the index? Well US online ads are about $25B and global sales twice that much at $50B.  The precise stats:

ZenithOptimedia estimates online ad spending worldwide will soar 26.5% this year, to $47.7 billion. Total ad spending worldwide, by comparison, is expected to grow 4.6%, to $653.9 billion this year, says Universal McCann.

Here’s the problem: social media advertising is a stretch for online media executives to swallow; for marketing execs from all walks of life (ie. offline) who will be seeing offline dollars flow online, at best it’s a joke… at worst, it’s borderline blasphemy.

Even within the online advertising segment, 40% of it is going to search; Google pulled in $17B in revenues in 2007. Do the math.  Google owns 60% market share.  Why did you think Microsoft (MSFT) was willing to pay $45B for Yahoo! (YHOO)?

The opportunity, if you ask me, is neither in social media ads nor is it in search.  The former is game over; the latter is too small relative to video.

After all, video is only going to do $1.25B in the US this year but will grow to $7.1B by 2012 and about $10-15B worldwide. By then, of course, global online advertising sales will be way north of $100B, I think video can be more because video ads stand to gain the most of TV ads; the one with the most to lose to online.

If I were Facebook, Bebo or MySpace, I would be focusing on using the social media bells and whistles to become a modern day video empire.  Oh wait, YouTube is trying to do that.  The problem?  YouTube’s overlord Eric Schmidt, CEO of Google has pretty much admitted that he does not know how to make money off YouTube… that’s a problem.  I see YouTube as a $1B-in-annual-revenues-property, but the problem is, no one listens to me.

Comments

[WSP1013]

Why report big revenue on a property that has a huge class action lawsuit brewing. I think Mr Schmidt might be showing a poker face and playing down the Video Portal's revenue potential until the waters clear. Smart move IMO.

[JachNightingale]

Thanks for your thoughts - but I believe Eric Schmidt said just last week that making more money from YouTube would start happening within weeks. He also said that Google could always have made more money from YouTube, “If we wanted to shove advertising down viewers throats.” Your article addresses the big issue of the video future. YouTube certainly doesn’t want to copy what the pathetic broadcasting geniuses from Westchester did to television. Wall Street is filled with greedy freaks that continually kill the geese that lay the golden eggs. Schmidt and the propeller heads from the valley don’t want to make the same mistake.