Why is YouTube’s Biggest Revenue Driver Not That Well Understood by its Top Creators?

Issue No. 11

On July 29, when Ruth Porat, the chief financial officer of Google and its parent company Alphabet, greets Wall Street analysts in the company’s second quarter earnings call, she is likely to repeat a statement I have heard her make since early 2020: the company’s revenue in the quarter was driven by growth in YouTube direct response advertising. 

When I have asked several top YouTube creators, and several people working at the company what the direct response advertising business is, I routinely receive an answer of “I don’t know what that is.” 

How is it that the biggest revenue driver on the largest video platform for creators is this unknown and not understood? The advertising product may account for half of the video platform’s revenue. 

As Google company executives put it in public statements, the direct response business was “practically nonexistent three years ago. Now it’s one of the largest and fastest growing ad offerings.”

Advertisers know the product as TrueView for Action. As of Q1 2021, sixty percent of the advertising format’s customers are new to YouTube. The absolute number of customers using the format doubled in the first half of 2020 as the global pandemic took hold, and offset sluggishness at that time in brand advertising on the platform.

Seventy percent of YouTube viewers say they purchased a product online after seeing it on the video platform, according to the company. Masterclass is touted as a lighthouse customer of TrueView for Action. They use the advertising product to target the right users at the right time. One hundred and forty percent more clicks and seventy percent more sign-ups for its courses as a result of using the advertising product. 

Many years ago, companies like Dollar Shave Club launched their brand marketing efforts on YouTube. The boom in direct-to-consumer brands soon moved to rival Instagram for direct response marketing, where the mobile platform offered a larger array of advertising products to optimize the conversion funnel. TrueView for Action is arguably YouTube’s answer, and it has been performing very well for the company. 

It may also be a masterstroke in getting in front of the market for influencer marketing, where the company has struggled in the past to have a solution that meets its high bar for scale. 

What marketers have targeted all along is the consumer watching content on YouTube, and they have a growing recognition that the creator can influence the consumer to take some action as a result of a message they deliver in the video. But what if YouTube could build advertising technology that gets to the same desired result, and enables the marketer better tracking to optimize their messaging? 

Data I have reviewed shows over six thousand marketers sponsoring fifty thousand plus videos from twelve thousand plus creators in the first half of 2021 on YouTube. It is a ten figure annual spend by marketers. My estimate is that there is six times more spend going through YouTube directly in 2021 for its TrueView for Action advertising product than via the creators and third party brokers. 

While this is a win for YouTube and its parent company’s shareholders, I am not so certain the same can be said for creators on the platform. From those conversations with creators and people working at the company, nobody could say for certain how the revenue share works for TrueView for Action. Creators in the partner program receive fifty-five percent of the advertising revenue from TrueView advertising spent against their videos. But how about the ‘for Action’ portion of the advertising spend? 

Creators are told they have influence, and are often labeled as influencers. How well do they know how their influence works? Is it growing or waning? How should they price their influence? 

Platforms and media companies routinely revise their rate cards for advertisers, and in the auction based advertising systems that are dominant on Google and Facebook, the rates are revised in real-time.

I can imagine in the three years YouTube has operated the TrueView for Action advertising product, it has amassed a treasure trove of insights on what creators and what videos drive what action, for what advertiser, and the value of the action taken post click. If only the creators understood this themselves. Many are in effect operating new generation media companies, albeit on a video platform owned by someone else. A big piece of what makes their ‘business’ thrive is a black hole. 

It does not always have to be this way. 

Commerce on YouTube

I heard earlier this year that YouTube was going to hire a vice president in its product team focused on commerce. As a product and engineering organization, any vice president level role is a signal from the company and where it intends to prioritize investment. The role was filled earlier this month. 

The merchandise shelf is a step up for commerce on the video platform. Its permanence means the company determined users clicking away to conduct commerce off the platform via a prominent piece of real estate was not detrimental to the overall user experience and platform goals.

What more can be done?

In many video descriptions, creators are providing links to third parties. One of the largest benefactors of the links in video descriptions is Amazon.

Since January 2020, there are over seven million videos uploaded to YouTube with a link to Amazon in the video’s description. Over two hundred thousand creators every quarter are actively promoting Amazon affiliate links. 

The volume of videos with Amazon links is up forty percent year-on-year, and the number of unique YouTube creators participating in the Amazon affiliate program is up thirty percent year-on-year in Q1 2021.

My estimate of the gross merchandise volume on Amazon that is coming from users on YouTube is around two billion dollars a quarter. This is slightly less than two percent of all sales on Amazon in 2020. 

Videos with Amazon affiliate links generate over eight billion views in the first thirty days, and have been doubling in overall views within ninety days. The archive value of YouTube content really comes into play here. Creators, and Amazon, continue to earn from users watching and clicking months after the initial upload of the video. 

At the high end of Amazon’s pay out to affiliates, creators stand to earn over eight hundred million dollars a year. Not bad for links in the video description.

There has been significant investment into link-in-bio startups in the past year. Most, if not all of these companies, are focused on platforms other than YouTube. 

YouTube has a majority of its usage on mobile devices, and the ‘about’ tab on a creator’s channel is an oft forgotten piece of real estate. You have to proactively scroll right several times to even see it. Maybe that should be a place of innovation both for YouTube and for the third party enterprise companies servicing creators on the platform. Bios work well on Instagram and TikTok. Why not YouTube too? 

The video description section is also ripe for enhancement. Creators are the ones who choose what goes there, in what order, and where they want to send the user. Amazon should not be the only company using that real estate to drive billions of dollars in annual sales. 

Lastly …

In 2020, as the pandemic halted air travel, I estimated I got back the equivalent of nine full work weeks not flying to Asia and Europe for business. It amounted to a lot more time for my wife and three kids. Also more time to work on new things. I co-founded two companies in the last 9 months. Creator+ is focused on financing and producing feature films with top creators and emerging storytellers and distributing these films via its owned and operated streaming platform, and Kollyde is focused on creator marketing strategies for companies. 

There is more in the works that will come out over the coming months.