How Google makes money off YouTube mobile

@CNNMoneyTech September 16, 2011: 9:36 AM ET

ANAHEIM, Calif. (CNNMoney) -- It should come as no surprise that content providers want to make money from YouTube, particularly on smartphones, which are among the hottest-selling gadgets on the planet.

What you may find surprising is that once Google figured out a way to make that happen, namely by allowing advertising, viewership skyrocketed.

Users may hate ads, but media companies aren't as interested in putting videos online without them. And six months ago, Google began allowing in-stream YouTube advertisements to work within its mobile application.

Google gives content providers the ability to opt out of putting their videos on mobile devices. But when the in-stream ad technology was launched, Vevo, one of YouTube's biggest content partners, was able to generate revenue from ads. As a result, Vevo began allowing its music videos to be viewed on phones.

YouTube streams on mobile devices have doubled since then, reaching more than 400 million views per day this month, up from about 200 million in March, according to Google (GOOG, Fortune 500).

The search giant expects that trend to continue after it launched promoted videos on its mobile YouTube site this week. The sponsored videos will appear at the top of the page, just like sponsored ads appear at the top of Google's search results.

"People want to view the same videos, the same way that they can online," said Francisco Varela, head of YouTube platforms for Google. "More monetization means a lot more content, means more views."

Google said it has grown its YouTube mobile ad sales by a factor of five this year, which is considerably faster than the growth of years' past.

The company declined to say how many videos are available on mobile devices as compared to the desktop version of the video service, only saying there are "hundreds of millions" on both services. But Google did note that YouTube mobile has grown remarkably in the past four years.

When it first launched in 2007, the mobile YouTube site had just 1,000 videos. One of the first ways to view YouTube on a phone was in a partnership with Verizon (VZ, Fortune 500), in which customers with Verizon's VCast service had access to 15 clips per day.

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But then came the iPhone in June of that year. As people began surfing the Web on those smartphones in the same way that they would on a desktop, it clued Google into the fact that users wanted the full YouTube experience on their phones.

"The big question in 2007 was whether anyone would even be interested in watching video on their mobile phones," said Varela. "It took us about a year to figure out people wanted good quality video delivered to them quickly."

YouTube launched a fuller mobile website in 2008, and the company reached 70 million views per day in the beginning of 2010. YouTube is now available on more than 300 million phones worldwide and 50 million more tablets and e-readers, the company said.

Though the site has soared in popularity since its early days, there are still technological challenges that impede it from displaying every single video that's available online. The biggest problem is that Google still can't serve clickable, pop-up advertisements in the video players on mobile phones.

Unlike the desktop experience, where the video plays right in the browser, YouTube mobile actually needs to play each video in the phone's native video player. It's the equivalent of opening up Microsoft's (MSFT, Fortune 500) Windows Media Player every time you watched a YouTube clip on your PC.

More than 10% of YouTube's 3 billion total daily playbacks are on mobile devices, Google said. But as the company continues to find new ways to make money on YouTube mobile, Google expects that percentage will continue to grow. To top of page

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