During Yahoo’s [YHOO] Analyst Day management’s comments centered on improving its existing platforms by enhancing customer/community engagement through better and more personalized content. The company said this would be its foundation for building “the next Yahoo” and just unveiled its newest version of Yahoo Video with this strategy at the forefront. Unfortunately for Yahoo, video sharing sites such as YouTube, VSocial, and Grouper have been gaining in popularity at unprecedented rates and the new offerings integrated into Yahoo Video are merely playing catch-up to the competition. Said differently, Yahoo is once again trailing in the innovation game and not offering anything that doesn’t scream “me too.” Yahoo cleaned up its UI and stuck with its strategy of community and personal engagement through several customization features such as enabling users to subscribe to specific video channels/categories, search by tags, create favorite lists and upload their own content to be discovered and shared with the masses. However, given all of these features are already available on other sites, which have a loyal and engaged community of users, I am skeptical the wave of user generated content will spill over to Yahoo Video. While Yahoo’s 200M registered users provides a large existing base to build on and perhaps some reasoning why it has yet to acquire any of the competition (and the amount of copyrighted material illegally posted on the sites), it is likely a large percentage of its users are already attached to an existing online video sharing platform. That said, if Yahoo is serious about building a brand associated with video sharing/search, its next release needs to differentiate and provide a wow factor, which is something the company has successfully failed at delivering.
Yahoo needs to innovate: The Company’s latest attempt at innovation through Yahoo Video wasn’t much of an attempt at all. Yahoo is becoming too well known as an innovation laggard, which is a practice that allowed Google [GOOG] to zoom past them and become the dominant leader in online search. Although Yahoo is making strides to begin enhancing its existing suite of offerings at a more rapid pace, the improvements to-date have yet to do anything more than to say “me too.” It is as though Yahoo has lost its innovation gusto and is settling into becoming a mature online media company. Despite the fact the enhancements made to Yahoo Video were the right ones to be made these releases lose credibility and have a shorter shelf life when there is nothing setting the offering apart from the competition. If Yahoo wants to create a sea change in online video they must innovate and think beyond what is already available in the market. One potential differentiator to-date for Yahoo, which is still in the early adopter phase, is its Yahoo Go for TV initiative, which enables Yahoo users to access their Yahoo accounts and thus, would enable users to access and view their Yahoo Video library on their TV. How can user generated online video sharing sites monetize the opportunity?: The number one question surrounding the hoards of user generated online video sharing platforms is how they will be able to make money on the service. Although the obvious answer centers around advertising it remains a question how much of a role advertising can play in monetizing existing platforms. For example, YouTube users reportedly watch 50M videos/day on its site and upload more than 50,000 videos daily, which are astonishing numbers. Additionally, YouTube allows users to create a profile asking for details such as gender and age, which is likely to be extremely valuable to potential advertisers. Assuming all 50M of the videos watched per day were original user generated content and didn’t include any illegal copyrighted material (although this is policed today it is far from 100% accurate and up to the responsibility of the content owner to report and have the material removed from the site), if YouTube were to insert 10-20 second advertisements before viewing the content at $0.10 per viewing the company could net $5M/day in ad revenue equating to $1.8B in revenue per year. However, this is obviously much easier said than done. These platforms don’t want to damage the user experience and are likely tip toeing around the idea of inserting ads directly into the user generated content, which are likely to takeaway from the viewing experience, especially considering the advertisements would likely be as long as many of the actual videos. I believes if the ad insertion strategy were to be adopted, users would likely seek incentives to continue participating on any given online video platform through a revenue sharing model, much like the affiliate networks of GOOG, YHOO, MSN etc. Additionally, given the traffic YouTube generates its homepage alone should generate a kings ransom in display advertising should the company decide to monetize its real-estate. MySpace reportedly garners $750K/day on its homepage in ad revenue, equating to approximately $270M a year in revenue.
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