April 10, 2006 12:05 am

YouTube hopes video will make site the next big thing

A lone sheet of paper taped to a glass door is all there is to guide visitors to YouTube’s offices above a pizzeria in downtown San Mateo, California.

While the company’s headquarters may be modest, its online presence is not. In just over 14 months, YouTube has gone from unknown start-up to one of the most linked-to sites on the internet.

“Dare I say it: YouTube is the MySpace of the online video world, literally and figuratively,” writes Greg Sterling at Search Engine Journal.

Mr Sterling is not alone in thinking that YouTube could be the next big thing. Last week, the company, founded by two 20-something veterans of PayPal, received $8m in second-round venture capital funding from Sequoia, the same VC group that helped launch Google and Yahoo into the stratosphere.

The company’s user-base has grown rapidly. It said the number of videos viewed each day on YouTube’s website stood at about 3m in October, five months after the site went live.

Then in December, a rap music video from Saturday Night Live, the US late night sketch comedy show, became an unlikely internet hit. A copy of the video was posted to YouTube, and traffic soared.

By January, the company said the number of daily views on the site had mushroomed to 25m, as visitors to MySpace and other community sites began to make YouTube their site of choice for sharing video content.

The excitement surrounding YouTube’s rapid growth is understandable. It has been less than a year since Rupert Murdoch’s News Corp paid $580m to snap up MySpace, a social networking site for teenagers. That purchase has put pressure on other media groups to catch up.

Facebook, another social networking site, was rumoured to have shunned a recent buy-out offer of $750m.

Could YouTube be on a similar trajectory? The company has not been focusing on revenues yet, but Chad Hurley, who co-founded YouTube with fellow PayPal veteran Steve Chen, is eager to point out the site’s potential for content providers.

“We have created a community around video,” he says. “This is really a good way for people to meet an audience. Traditional media companies have a way to reach new consumers.”

A report published last week by IDC predicts the online video could generate $1.7bn in revenues by 2010. Joshua Martin, who wrote the report, says most of that will come from full-length TV shows and other long-form content offered by traditional content providers, and not the short form amateur content prevalent on YouTube.

But some say it is just a matter of time before content providers wake up to the value of short-form video as an advertising tool.

“We are trying to tell big media that they have opportunities to help promote their existing content using short-form video,” says Mr Hurley. Content providers, he says, can grab traffic by uploading a brief teaser for longer film or TV show, along with links back to their home page.

YouTube has carved out a valuable niche in online video but whether it can hold on to that position is another question. MySpace has recently been promoting its own independent video offerings, a trend that has prompted LeeAnn Presscott, an analyst at Hitwise, to ask whether Mr Murdoch’s teenage networking site could become a YouTube killer.

For now, YouTube has one important advantage. Its site is stickier. The average visitor spends about 14 minutes watching and commenting on videos on YouTube, against an average of about 7 minutes for other sites.

Ultimately, competitive pressures could force YouTube to seek what will no doubt be a lucrative exit.

“YouTube is precisely the kind of site that Yahoo would love to have in its stable to jump start its video usage,” writes Mr Sterling. “But with its rapid growth and new VC funding, YouTube is quickly moving beyond easy acquisition status.”

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