YouTube Ads: Day 2 Grumbles and Math

YouTube’s newly launched ad formats have been the topic of much discussion this week, both here and elsewhere, with much of the hullabaloo centered on VideoEgg’s claim it had “invented the video overlay.” (Survey says: nope.)

Analyst Henry Blodget crunched the numbers yesterday on YouTube’s potential revenue from the new units, concluding it was minimal. We dropped him a note to point out that YouTube is charging CPMs for every overlay seen, rather than every time a viewer clicks on an overlay (which Google PR confirmed via email). He revised his numbers, also reducing the expected CPM, and ended up with mostly smaller estimates of $12 million to $360 million in annual revenue.

Then today, Blodget caught fellow analyst Mary Meeker on a calculation error of her own, this one a bit more serious. Her estimates of $4.8 billion of gross revenue and $720 million of net revenue depended on $20 CPMs being the cost per thousand, but rather the cost per individual, Blodget said. So those numbers drop three digits.

Elsewhere, people are making far too much of a potential YouTube user revolt stemming from dissatisfaction with the ads.

It’s important to note that the ads are only shown on partner videos, with partners’ permission, and YouTube is sharing revenue with the partners. We’ll have to wait to see if a mass exodus actually happens, until then this is the normal friction of a change on a site with a dedicated community. Past mass defections never really came to fruition.

Lastly, quite a few people are having fun criticizing the press, especially CNET, for fawning coverage of the so-called “viewer-friendly ad format.” The important thread here is that ads are, at best, a necessary evil.