YouTube ad boycott could spell trouble for Alphabet’s Google
SAN FRANCISCO: YouTube’s inability to keep big-brand ads off unsavory videos is threatening to transform a rising star in Google’s digital family into a problem child. It’s not yet clear whether a recent ad boycott of YouTube will be short-lived or the start of a long-term shift away from the video service - one that could undercut Google’s growth and that of its corporate parent, Alphabet Inc.
Alphabet’s first-quarter results, released Thursday, provided few clues. Major advertisers didn’t start pulling their money from YouTube until the three-month period was nearly over. The company’s earnings rose 29 percent to $5.4 billion while revenue climbed 22 percent to $24.8 billion. Shares surged nearly 5 percent, to $933, in Thursday’s extended trading.
Cloud over YouTube
But the fallout from the YouTube boycott is likely to be felt through the rest of this year. Skittish advertisers have curtailed their spending until they are convinced Google can prevent their brands from appearing next to extremist clips promoting hate and violence. “There is no entity in the world that is more risk averse than a senior marketing person,” says Larry Chiagouris, a marketing professor at Pace University in New York. “They don’t want to go with a media choice that presents problems for a brand, and they don’t have to because they have many other choices.”
Google CEO Sundar Pichai told analysts during a Thursday review of the first quarter that the company has had “thousands and thousands” of conversations with advertisers as YouTube takes steps to protect their brands. “We are evolving overall to a better place,” Pichai said. At another point, he assured analysts that YouTube is still experiencing “extraordinary” growth without providing specifics. Even if YouTube continues to lose advertisers, it won’t leave a huge dent in Alphabet’s earnings.
That’s because marketers are expected to keep feeding the company’s golden goose -Google’s dominant search engine. Ads appearing alongside the billions of search results Google churns out each day still generate most of Alphabet’s revenue even as it expands into other fields. But ad spending has been accelerating at a rapid pace on YouTube over the past two years as brands sought to connect with its audience of more than 1 billion people. Now it looks like things might taper off.
Taking the gloss off
Before the boycott began, YouTube’s ad revenue after subtracting commissions was expected to rise 26 percent this year to $7 billion, based on estimates from the research firm eMarketer. Alphabet doesn’t disclose YouTube’s finances. Advertisers began to flee YouTube last month, after The Times in London and other media outlets turned up evidence that their brands were appearing alongside clips promoting terrorism and racism. The findings alerted advertisers that YouTube didn’t have adequate technology or staffing to shield brands from some of the appalling material that gets posted on a site that receives 400 hours of video per minute. “This is an ostrich situation where the ostrich just pulled its head out of the sand,” says Harry Kargman, CEO of Kargo, which helps manage ad campaigns on mobile devices.