Google Inc. (GOOG)’s YouTube has tripled advertising sales on mobile devices in the past six months, the company said, contributing as much as an estimated $350 million to revenue at the video-sharing website.
About a quarter of YouTube’s 1 billion global users now access the service via handheld devices, spurring a increase in promotional spending to reach that audience, according to Lucas Watson, vice president of sales at YouTube.
The growth in mobile video-ad sales, disclosed for the first time in an interview, indicates YouTube is making headway in efforts to attract marketing dollars and challenge rivals such as Hulu LLC. With faster wireless networks and accelerating adoption of smartphones and tablets, U.S. mobile video-ad sales are projected to expand to $2.69 billion in 2017, increasing more than 10-fold from last year, according to EMarketer Inc.
“The commercial business has exploded,” Watson said in an interview. “It’s a huge part of our business, and we know that’s where it’s headed.”
YouTube generates about 10 percent of Google’s total revenue, according to an estimate by Martin Pyykkonen, an analyst at Wedge Partners Corp. Based on Google’s $14 billion in sales in the latest quarter, and Pyykkonen’s estimate that mobile contributed 20 percent to 25 percent to YouTube, as much as $350 million in sales probably came from mobile video ads.
Google shares rose less than 1 percent to $859.70 at the close in New York, leaving the stock up 22 percent this year.
More than half of smartphone users in the U.S accessed YouTube’s application in March, according to Nielsen Holdings NV. (NLSN) At least 70 million people in the U.S. were on the app in March, up 42 percent from a year earlier, the researcher said.
YouTube’s program, available as a download from Apple’s App Store and featured on devices running Google’s Android operating system, shows commercials before a video starts playing. The challenge in mobile advertising is to keep consumers engaged to view promotional clips, said Julie Ask, an analyst at Forrester Research Inc. (FORR)
“People have less patience on the phone; consumers have become more task-oriented,” Ask said. “The ads have to be entertaining and there’s a higher bar to some extent.”
The recent growth in usage follows Apple Inc. (AAPL)’s decision last year to drop YouTube as a core application in the iOS software for iPhones and iPads, said Phil Farhi, director of product management at YouTube.
Seeking to make it easy for companies to shift advertising to mobile video, YouTube automates the task for marketers buying advertising, splitting airtime between computer browsers and mobile devices, Watson said. Companies can also opt out of multiscreen advertising, he said.
Electronic Arts Inc. (EA), the video-game maker, is looking to expand commercials on mobile devices, according to Christine De Martini, social marketing and media manager at the company.
“YouTube as a video platform is a definitely a key one for our products,” De Martini said. “I would anticipate as mobile consumption continues to grow, we’ll have to find ways to make sure that we reach our audiences on whatever platforms they’re on.”
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