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YouTube: inside revenue share, a theory.

Video sharing site YouTube is the 4th most visited website on the planet (According to Alexa Rankings).   It’s now going to give something back to some of the users who helped create that popularity (and who helped the company get the $1.65b purchase price Google paid to acquire the company last November).

Late last week, YouTube announced it was finally making good on a promise made in January to share advertising revenue with some of its more prolific and well known members.   The people behind such magazine-cover-spanning, pop-culture hits like Lonelygirl 15 (actress Jessica Rose was on the cover of Wired, etc) and LisaNova (star Lisa Donovan has been all over the press and is now appearing on MadTV) will be getting nearly the same benefits as commercial content partners who broadcast on the site.

Specific details have not been disclosed yet but at the heart of things, the benefits are suggested to include an approximately 40 to 50% share of revenue generated from ads wrapping the members individual broadcasts. 

Unlike smaller competitors Revver , which shares ad revenue with all its uploading members, or Guba, which pays affiliate fees for registrations referred by its users,  the revenue sharing agreements at YouTube will not extend to any (or arguably even many) YouTube users.  Only a small selective group will get the rewards, at least initially.

Until more information is revealed, any guesses about what this will actually entail, or what will follow, are largely pie-in-the-sky speculation.  Still, there is some small basis for believing that this is a measured first step towards a possible roll out to a wider portion of YouTube’s users.  Dating back months, and including a speech co-founder Chad Hurley gave in Switzerland, there has been talk around and inside YouTube about providing more incentive for users to create and present their original user-generated content.  Revenue sharing, mixed with the popularity of the site relative to competitors, makes an easy and obvious means for doing that.

While I have little basis other than intuition and guess work to justify the argument, I think YouTube may actually be contemplating (or trying to build) an Adsense-like platform to allow the administration of video-wrapping ads for a much wider pool of users within their site. (By video-wrapping, I mean ads around the video content that are contextually appropriate to what’s being shown.)

Building the tools to track and managing ad-campaigns on such a scale that it could be applied to YouTube’s entire user-base of user-generated-content partners is not trivial.  (Though owner Google most definitely has the experience, and has seen the benefits in its AdSense platform).  It’s also often overlooked that startups (which YouTube was not all that long ago) often build their systems within the constraints of a limited budget and unclear future.  Prototypes in that environment are frequently built not for scalability but rather display and proof of concept. 

(As a case on that point, YouTube was built on the open source database  MySql (which is free) rather than an proprietary enterprise database system  like Oracle which would have excessively costly.  Shortly after the Google purchase, I heard there was concern about how much further that database system would scale with growth. Supposedly, tests were run to study migrating the site’s back-end to Oracle in the hopes of speeding up the site and being able to reduce the amount of compression applied to the video files.  That Oracle migration didn’t  happen, but only because elements of YouTube’s programming and system optimization were written in Python scripting language that didn’t work with Oracle, or were so heavily tailored to Mysql that they resulted in poor performance on the Oracle platform. )

YouTube grew at an incredible rate, and like the database example (if it is in fact true), the company’s systems and infrastructure may require a lot of adjustment to properly support a widely released scaleable ad platform.  A controlled roll-out of revenue sharing may be a method for testing not just concept and business ideas but also for building out the technology infrastructure necessary to expand it to a greater pool of users.

If YouTube is up to some sort of new ad-management/placement system, there are a lot of features to build.  For one, they’d likely want to be in a position to allow ad-buyers to selectively choose placements for different categories/themes of content, and they’d then want to have the data to optimize those ads across the campaign – which would be essential for their ad sell-through process.  Additionally, YouTube might also want to build in components to any in-development ad-serving platform that would help them review and verify there aren’t copyright violations.  (With Viacom, the English Premier League (filed suit last week) and others already filing subpoenas in active cases, it would make sense for YouTube to consider features that mitigate potential copyright lawsuits). Unquestionably, archiving and validating content against possible copyright infringement at the same time as indexing it for ad-serving would be an efficient combination. 

It’s very much a crystal-ball impression, but I would not be surprised it YouTube, flush with Google’s cash and infrastructure to assist it, isn’t working on trying to innovate in-video advertising the same way that Google did with search.  I’d see the limited revenue sharing arrangement as just a small step toward that goal.

By my logic, that kind of move would definitely fit with all of google’s advertising related purchases like Doubleclick, Adscape Media etc. (For more on that, see the Metue article here.)

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