Internet Video is Hot, But Not a Money-Maker Yet

The buzz on the Internet these days is that if you want traffic, your website better have video. They point to YouTube as the big gorilla, but also social networking with video (Bebo), and video job sites (VisualCV). One video blog (now called vlog) on YouTube has over two million subscribers.

But the word on the street is that very few, if any, of the video-only companies are making money. Even the veritable YouTube doesn’t seem to be bearing as much fruit as Google clearly thought it could when it paid $1.65 billion for the site in 2006.

One large Internet information provider, comScore, says U.S. online video watchers generated a 40 percent increase in consumption in a single year, and there’s no reason to think it will go away. According to predictions and what I see on the many sites I have visited, there are still positives and negatives to consider:

• YouTube is already gigantic, so the interest is there. It claims to serve two billion video views per day. There are now more than 24 hours of video uploaded every minute to the site. Their revenue from advertising may approach one billion dollars this year, with most consumed by bandwidth and associated costs, YouTube isn’t even profitable yet.

• The biggest trend in online video is watching it anywhere on the new smart phones. Video is going mobile with the high bandwidth like all new applications. Video segments must be shorter, and match the interests of these users. At least 66% of Internet users watch at least one video per month online.

• The largest video social network, Bebo, purchased for $850 million, was just sold by AOL in a “fire sale,” after it lost half its membership of 10 million users last year. During the same period, Facebook approached 500 million users worldwide.

• Video ad network BrightRoll claimed profitability last year, but took a $10M third round of financing just recently. They now have 50M unique viewers per month, and have closed a $10M third round. They are most optimistic about video advertising, rather than vlogging or other applications, since video ads have been the norm for a long time.

• It looks like YouTube has a lock on the video blogging, which is still coming of age and yet to make money. An early high flyer in this space, MoBuzz, couldn’t make a business and folded a couple of years ago.

• Hulu is a popular website offering streaming video of TV shows on demand in the United States, and movies from NBC, Fox, ABC, and other studios. Hulu is for TV what NetFlix is for movies, but its growth has been dropping off sharply.

• There is now even a search engine, called Clicker, which is geared to find the online video and Web TV content to be able to watch it. Clicker has just raised $11 in funding, and is hoping that traffic will now follow. They provide a fast, free, and easy way to search for online video all across the Web.

Thus my recommendation is that you integrate video into your website offering, but don’t make it the only offering. Video is one of the ways to deliver customer value, but it is not THE value, per se. In some cases, video can detract from your message, by taking a long time to load, by forcing extra clicks, and giving the negative impression of being forced to listen to a commercial.

As with all businesses, website success is driven by delivering the right mix of value to the customer, in the right format and context. Of course other things, like the market, founder dynamics, funders’ indulgence, and luck will have a part in your success or failure. But if you’re lucky enough to have a little runway left, add some video value. It’s necessary, but not sufficient.

Marty Zwilling