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Yesterday, Facebook reported $0.12 in earnings when the Street was expecting $0.13. Every single conference call and investor meeting in which Facebook is presenting they point out that the money is not there yet because of mobile. Their “claimed mobile strategy” has not kicked in and produced a huge profit. Facebook did state that 30% of revenues are now via mobile. Well, when is this money making strategy going to come about? For quite some time social media gurus would compare Google+ to Facebook. I think a much better comparison would be comparing YouTube to Facebook.

How Does YouTube Make Money?

YouTube makes money through advertisements before and during videos. If you have watched more than one YouTube video in the last six months you have seen the ads that pop up before the video starts. Most of the time, after 5 seconds, you have the ability to “skip the ad”. If you watch the entire ad, the publisher and YouTube makes money from the advertiser. If the ad is skipped there is no transaction. There are also Adsense ads at the bottom of the video while it is playing and to the right hand side of the video in a 250 x 250 box.

The Adsense ads that are within the YouTube player can be closed at any time by clicking the x on the upper right hand side of the advertisement. This means that users have the ability to remove ads if they so desire. The 250 x 250 ad on the right will stay on the YouTube desktop page no matter what. Over 99% of the time this will be a picture ad. Very briefly I saw test ads in that particular spot but it is a rare occurrence.

For YouTube to make money off the Adsense ads users must click the Adsense ad. Many YouTube publishers realize this is not happening all too often. The click through rate (CTR) on YouTube videos is much lower than a website that has relevant Adsense ads. That said, there are still many YouTube viewers that find these ads quite useful.

Just yesterday I was having lunch with a friend and he mentioned a YouTube Channel that was created to help viewers relax and reduce stress. The individual creating the videos had a very soothing voice and she was great at just talking about the little things in life that make it more relaxing and enjoyable. While watching the video he noticed an advertisement for Lunesta, which is a sleeping aid. It makes sense that those wanting to relax and reduce stress would desire a sleeping aid.

When watching viral videos such as a Psy music video or a cat falling off a sofa there is a good chance the ads are not as focused as Google would like. That said, there are many people searching “How to Fix a Bathtub” and the ads are very relavent. Remember that YouTube videos show up in Google organic search as well. That means the individuals look for videos on how to fix something will likely end up at a YouTube video that has relevant ads. This is gold Jerry.

Facebook Struggles with Relevant Ads

Facebook has plenty of data on its users. In fact, some users give more data to Facebook than they will ever give to their spouse or their parents. This allows Facebook the opportunity to “attempt” to show relevant ads. Unfortunately for Facebook, most users are not actively searching for help or a product. They may have put that an area of interest is lawn care in their about page but that does not mean that they are going to start bouncing around Facebook looking for the best lawn care professional in their local town or city.

Remember the viral videos on YouTube that I mentioned? That happens to be most of what is going on on Facebook. All those music videos shared and pictures uploaded are not conducive to ad clicks. They may provide Facebook with the opportunity to create millions, even billions, of ad impressions but those are not ad clicks. Most businesses paying for advertising want to see users actually get to their website or product.

I have seen many small businesses drain through cash with Facebook advertising and not get a single new customer. I would encourage all businesses to consider pay per click rather than pay per impression. Facebook can pump out impressions in a matter of seconds but that does not mean that your product is being seen by an audience. I think we can all agree that many Facebook users completely tune ads out.

Conclusion

The fact that YouTube has the ability to rank very well in Google organic search and users are searching to fix a problem means that the ads are much more relevant. Every YouTube video is not going to serve relevant ads. That said, there are millions that will. This is one of the main reasons I think YouTube will end up making more money than Facebook. Oh yeah, that have that little company called Google backing them as well.

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