Google’s (NASDAQ:GOOG) core business continues to be stable, profitable and growing, leading company executives to invest heavily in Android, Chrome and YouTube while planning for long-term convergence of mobile and video. In following the last year of earnings calls, it’s clear that Google’s largest advertising customers are pushing the company to bring video to mobile at a level of performance and usability not accomplished yet. The Q2, 2012 earnings call transcript makes this point clear which can be accessed here at Google’s Management Discusses Q2 2012 Results – Earnings Call Transcript.
Mobile and Video: Transforming Convergence Into Cash
Over the last year, Google executives have mentioned the growth of YouTube and its quick evolution from a content management system to a profitable advertising platform several times. During the Q1, 2012 earnings call held on April 12, 2012 the following points were made:
- Google reported they had over 800 million monthly users uploading over an hour of video per second
- U.K. mobile operator O2 used YouTube as the foundation of a brand launch that year; support for 100 new original channels completed and launched
- Global product launch plans from GM, Toyota and Unilever among others were underway. Immediately following this is a discussion of how quickly the mobility business is growing for all forms of digital content including video.
During the Q2, 2012 earnings call, Nikesh Arora, Senior Vice President and Chief Business Officer started his comments regarding the YouTube business with the statement “I think in 2007 it was when newspapers frequently said YouTube is groping for an effective business model. I think we can declare we found our model.”Immediately after making this statement, Mr. Arora mentioned that yearly account signups have doubled year-over-year and users are uploading over 72 hours of video every minute. He also mentioned that “thousands of partners are making six figures and we’re proud to work with major record labels in Hollywood studios on this platform.”
The call continued with the points made of Danish advertisers shifting their television advertising dollars to YouTube and other Google branding solutions. Additional companies mentioned using YouTube-based advertising include Denon, Shire, and Intel. It is in this discussion that the pressure large advertising customers are putting on Google to accelerate the development of video on mobile is apparent.
Google’s Challenge: Keep Content Quality and User Experience Constantly Improving
If Google is going to attain the full revenue potential of YouTube as an advertising platform, they’ll need to focus on the following factors:
- Create Application Programmer Interfaces (APIs) and easy-to-use programming tools for quickly creating mobile-optimized sites. AsGartner studies have shown, video on telephones is most often used as a time-filler, with a median length of 2 minutes, 46 seconds.
- YouTube will need to support more optimized mobile-based video browsers that can support contextual search. This will be a core requirement for the enterprise, specifically in the areas of mobile customer care, mobile commerce and mobile health.
- More extensive analytics in YouTube than are available today, specifically tying into to major marketing strategies including product introductions. It is becoming common knowledge that videos improve viewer engagement and prospects attribute a more positive shopping experience when they are used. Luxury brands are investing heavily in this technology including BMW, Burberry, Channel, Louis Vuitton and many others.
- More effective algorithms for ranking and contextually defining video content. A Google/Ipsos OTX MediaCT smartphone users study completed in April, 2011 shows that 77% of smartphone users said that their most visited site was a mobile search engine.
Mobile Video: The Market YouTube Built
The size of the worldwide mobile video market was comprised of 429 million mobile video users in 2011, projected to grow exponentially to 2.4 billion users by 2016. Smartphones and tablet sales will contribute 440 million new mobile video users during the forecast period. These market estimates are from the recently published Gartner report, Market Trends: Worldwide, the State of Mobile Video, 2012.
Additional take-aways from this report include the following:
- Allot Communication’s reports that mobile streaming grew 93% in the first half of 2011; Allot also reports that the usage of YouTube’s mobile channel grew by 152% and YouTube generated 22% of all mobile video traffic in the first half of 2011. YouTube reports getting 400 million video views a month globally.
- Gartner reports from a survey completed in the 4th quarter of 2010 that 32% of mobile enterprise users watch short videos from YouTube and other sites optimized for video streamlining.
- The fastest growth for mobile video will be in Latin America as smartphone adoption continues to accelerate, replacing traditional cell phones in these markets. Asia/Pacific will have the highest number of mobile video users at 541 million by 2016. Both of these markets will benefit from low-cost smartphones being produced by contract manufacturers who are becoming the dominant production strategy of brand leaders globally. The following graphic shows the Mobile Video User Forecast by Region, Worldwide, 2008 – 2016.
- By 2016, close to 60% of professionally developed mobile video content will be delivered via mobile-optimized websites that also have enhanced contextual search functionality included in the content management systems. Mobile customer care, mobile commerce and mobile health will be the three primary industry drivers in the near-term of mobile video market, emerging as growth catalysts of this emerging market.
- Cisco’s Visual Networking Index study reports that last year, mobile video accounted for 56% of all mobile data traffic. You can find the methodology of this study and results at this link on the Cisco site: http://www.cisco.com/en/US/netsol/ns1186/networking_solutions_sub_solution.html
- 3G/4G connections are emerging as a powerful catalyst of mobile video growth. Gartner is forecasting that the worldwide share of mobile video connections on 3G/4G will increase from 18% in 2011 to 43% in 2015. In more established markets incouding North America and Western Europe, the percentage of 3G/4G connections is expected to be as high as 80% and 96% respectively.
- Gartner projects that 70% of mobile video users will use only Wi-Fi to view mobile video, with the remainder of the market relying on a mix of cellular and Wi-Fi networks to gain access and also upload content. The following figure shows the Mobile Video User Forecast by Network Type, Worldwide, 2008 – 2016.
Source: Market Trends: Worldwide, the State of Mobile Video, 2012. Gartner Group. Published: 10 February 2012 ID:G00223693 Author: Shalini Verma. Link: http://www.gartner.com/id=1920315