YouTube’s quiet evolution into the heart of Google

Listening to Google’s Q4 earnings call Tuesday, I couldn’t help but notice that there’s been a change in tone with the regards to the way Google (s GOOG) execs talk about YouTube. In the past, YouTube has always been treated as one of many parts of its business: worth a shout-out, and maybe a nice data point if time permitted.
This time around, it seemed to move more towards the center. “Video is now baked into all of our products,” said Google Chief Business Officer Nikesh Arora, adding that video is especially important for advertising: “Video is a key language that brands speak.”
Arora said that Google’s top 100 brand advertisers spent 50 percent more money on YouTube in 2012 than during the previous year. He reiterated that the site now generates more than 4 billion views a day. There was also the obligatory Gangnam Style mention, which generated $8 million in ad revenue for Psy, according to Arora. One new metric shared during the call was that 70 percent of YouTube’s in-stream ads are now what the company calls TrueView – ads that viewers can skip, and that advertisers only pay for if they’re not skipped.
Detailing all that data alone said something about the role YouTube is playing for Google these days. But YouTube seemed to pop up all over the call. In fact, the video site was mentioned a total of 23 times, according to the Seeking Alpha transcript. A year ago, YouTube was worth 15 mentions. During the Q4 2010 call, the site only got mentioned six times.
Even more striking: Arora specifically called out YouTube as something that moves the needle with regards to ad revenue, saying that the company’s ad revenue growth in the Americas was driven by “mobile and YouTube.” Google Chief Financial Officer Patrick Pichette also pointed to YouTube as a money maker, saying: “We are obviously… pleased with the YouTube business, particularly the watch page.”
Why is YouTube suddenly becoming such a big deal for Google? Primarily for two reasons: First, YouTube producers have been stepping up their game, and YouTube has invested a lot of money to bring professionally-produced channels to the site, which in turn get higher CPMs from premium advertisers.
And YouTube is expanding its device footprint. The site’s videos can now be viewed on more than 400 million devices. But more importantly, a growing percentage of these views gets monetized. One example: YouTube rolled out its own iPhone and iPad apps last year, which finally enable the company to monetize app-based views on Apple’s devices. Given the fact that YouTube now sees 25 percent of its views on mobile devices, those apps alone should add more than just pocket change to Google’s coffers.
I remember many instances over the years of journalists asking whether that $1.56 billion acquisition of the video sharing site was really worth it. Questions about whether or not Google was losing money with YouTube, always followed by the company declining to break out individual lines of business in somewhat-tense language. I also remember Google events where YouTube seemed to be somewhat sidelined.
All of that has changed as YouTube has grown up. Sure, Google still isn’t breaking out how much it exactly is making with YouTube, but it sure sounds like it has become a key money maker.