Almost two years after it paid $1.65bn (£848m) for the YouTube video-sharing site, Google still has not worked out how to make money from the business, its chairman and chief executive conceded, even though hundreds of millions of people visit it every day.
In a public interview in San Francisco yesterday, Eric Schmidt said that Google while wants to change the world, it had yet to transform YouTube into a money-spinner.
"The goal of the company is not to monetise everything, our goal is to change the world – monetisation is a technology to pay for it," he said. It "seemed obvious" there should be "significant amounts of money" to be made from YouTube, he added, but the company has not yet come up with the formula.
While Google remains committed to retaining its hugely successful model of offering all services for free, the question of how sites such as YouTube can make the most of their enormous success does not yet have a satisfactory answer.
Mr Schmidt's admissions may come as a relief to critics who have become increasingly anxious about Google's worldwide dominance of the internet. Despite Google's much-vaunted "don't be evil" corporate slogan – which Mr Schmidt said was a joke designed to provoke internal ethical debate – the company's meteoric expansion into, most significantly, the online advertising market, is causing concerns about privacy for individuals and commercial organisations.
Still, Google is certainly looking for ways to make money from YouTube. It is due to launch video-based advertising of an unspecified new type on the site in the coming months, having already tried using banners and "in video" ads.
Although Mr Schmidt rejected accusations of market dominance on the grounds that Google only leads the market in search advertising – Yahoo wins on display ads – it is the future that worries both his company's rivals and some of its customers. Google takes a massive 85 per cent share of search advertising, and pockets some 50 per cent of the UK's total online advertising spend, which includes display, search and classified. Not content with auctioning sponsored links to run alongside its searches, Google is also taking over other links in the chain.
The $3.1bn (£1.6bn) takeover of DoubleClick that was cleared by regulators this spring, for example, creates a platform linking to any number of individual, smaller sites, as well as providing Google with an unprecedented amount of commercial data.
Google's dominance has also acted as a catalyst for an internet landgrab as technology companies such as Yahoo and Microsoft rush to reinvent themselves as advertising platforms – Yahoo through the $300m purchase of BlueLithium, Microsoft by buying Acquantive for $6bn – as the only way to hope to compete.
"Google is establishing a vast advertising ecosystem," said Nigel Gwilliam, of the Institute of Practitioners in Advertising.
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