YouTube (owned by Alphabet aka Google) is arguably the most successful media company on the planet. According to the research firm Statistic Brain, the service enjoys 1.3 billion users who watch almost 5 billion online videos a day.

That's lot of eyes. And a lot of ears, too.

Many of  YouTube's pageviews are actually pagehears (to coin a phrase), where YouTube functions as a virtual jukebox, more like Spotify than Netflix.

The big difference, of course, is that, unlike Spotify, YouTube is free (i.e. paid for by ads) while other music streaming services, like Spotify, get the bulk of their revenue through subscriptions.

Since subscription-based revenue is both more predictable and profitable than ad-based revenue, YouTube naturally wants a piece of the action.

Now, you'd think that a company as reputedly brilliant as YouTube could figure out how to segue from ad-based streaming to subscription-based streaming. But you'd think wrong.

YouTube Red, the company's subscription-based video streaming service only accounts for around 7% of YouTube's revenue, even though it was launched all the way back in October of 2015.

But YouTube Red is a huge success story when compared to YouTube's attempts to launch subscription-based streaming music, a market where YouTube's market share is, well, pretty much non-existent.

Most high tech firms, when trying to break into a market, go the "build a better mousetrap" route. They offer better ease-of-use, features people want, trial memberships, and so forth. If they fail, they assume they got the mix wrong, so they regroup and try again.

YouTube, however, doesn't plan to follow that time-honored playbook. Instead, YouTube intends to irritate its current user base by increasing the number of ads until those users pay up, out of desperation.

This is a truly bizarre market strategy for three reasons:

  1. Making the current product less user-friendly is more likely to drive users to other services rather than convince them to upgrade.
  2. Advertisers work hard to make their online ads entertaining; they might not appreciate YouTube repositioning them as instruments of torture.
  3. It doesn't address the root problem, which is apparent inability of YouTube to create a subscription-paid streaming service for which users are willing to pay.

I've been wracking my brain to recall any other marketing strategy in the past that crutches on annoying people until they buy from you. The only one that comes to mind are the "squeegee men" in old New York City, who'd insist upon cleaning your car windows unless you paid them to go away.

I'm not entirely sure that's a viable business model for a high tech service.

Published on: Mar 29, 2018
Like this column? Sign up to subscribe to email alerts and you'll never miss a post.