Google’s parent company, Alphabet Inc., has reported that the company has lost $70 billion from its market cap, citing poor ad revenue growth from their online video platform, YouTube.
On April 29th, Alphabet reported that ad revenue in 2019 had only grown by 15%, a stark contrast from the 24% increase the company saw a year prior. This drop in actual revenue for the first-quarter of 2019 was far below predictions, resulting in the loss of $70 billion from its market cap. According to Google Chief Financial Officer (CFO) Ruth Porat, a major factor in this revenue loss is YouTube:
“While YouTube clicks continue to grow at a substantial pace in the first quarter, the rate of YouTube click growth rate decelerated versus a strong Q1 last year, reflecting changes that we made in early 2018, which we believe are overall additive to the user and advertiser experience.”
The “changes that we made in early 2018” referenced by Porat were two announcements which seriously impacted a user’s experience. The first was a series of updated guidelines for users wishing to monetize their channel. These guidelines changed eligibility requirements for a channel to monetize their content, including requiring a channel have 4,000 hours of watch time within a 12-month time frame and a minimum of 1,000 subscribers. The second was a site-wide effort to crack down on abusive, toxic, and harmful YouTube content, such as explicitly violent videos or blatantly fake news. Unfortunately, this effort had a more apparent impact on independent creators, who found that their videos could quickly be demonetized for vaguely violating the ill-defined content policy, thus resulting in many users refusing to use YouTube as a primary source of income.
Late 2018 also saw YouTube come under fire for their decision to ban the controversial figure Alex Jones, and his news site Infowars, from their platform, a decision which sparked massive outrage and numerous debates regarding censorship by large tech companies. However, a YouTube spokesperson told CNBC that “bad actors” were not a factor because they were not making “meaningful money”:
“There’s a misconception that YouTube makes money off of recommending ‘radical’ content, but the truth is that very little of this content makes any kind of meaningful money. In fact, when we cleaned up our partner program to remove bad actors last year, we made it clear that 99% of those impacted creators were making less than $100 a year.”
There is speculation that YouTube’s increasingly strict guidelines may have resulted in a self-inflicted injury on their ad revenue. This is due to years of YouTube’s algorithm promoting and pushing harmful content directly to the forefront of user’s feeds. Though the content of the videos may have been complete fabrications or dangerous conspiracy, these videos resulted in maximum user engagement (and subsequent continued engagement due to a continually filled list of recommended videos) and allowed for advertisers to reach massive audiences by allowing an ad to run attached to one of these videos.
In fact, a recent Bloomberg report found that YouTube had been ignoring harmful content on their platform in favor of engagement, despite numerous internal and external complaints. With the recent crackdown on content labeled as harmful, such as videos featuring conspiracy theories and video game characters in suggestive clothing, it is possible that YouTube will continue to see their revenue numbers fall as users continue to find less reason to engage with the heavily moderated and censored content of the platform.