How Will Chrome OS Make Money? The Secret Is YouTube

Last Updated Nov 20, 2009 4:56 PM EST

Yesterday Google showed off its forthcoming Chrome OS, leaving many to wonder how exactly the company will monetize it. The answer: it won't. Since Google derives 97% of its revenue from online ads, it simply wants you using a computer that is always online. Specifically, it wants you on a computer that is one click away from YouTube, which has been flourishing this quarter into a bona fide revenue engine.

Google's Chrome OS Why YouTube? Textual ads generate chump change compared to video advertising. And since Chrome OS machines won't store any data locally -- no music, no movies, no photos, no games -- users will go to the Web to be entertained even more than regular PC users. Google is working hard to make sure that YouTube will be your one-stop shop for procrastination with more content, more monetization, and broader appeal.

Google has been experimenting successfully with YouTube monetization for a while now using its content ID system, but in the last few weeks the site appears to have hit its stride. Just read back two weeks in Google-related news. Not only has the site been toying with pre-roll ads (ala Hulu) to command higher fees from advertisers, but it's also building out its video system to serve high-def videos in 1080p. Content is growing too; just this week company added thousands of full-length network shows in a new category called (duh) Shows, boasting everything from The Young and the Restless to Star Trek. If you're looking to listen, not watch, YouTube will have you covered there, too; this week it announced it will roll out its new streaming music service called Vevo on December 8th, replete with music from Universal and Sony.

YouTube is also pushing to broaden its audience. It has been experimenting with subtitling videos, ostensibly to make them accessible to the hard of hearing. But as the New York Times notes, they're also offering auto-translation into 51 languages, which will expand the audience for English videos to "millions of other people." The company also announced last week it would be featuring content from the nation's biggest Spanish-language broadcaster, Univision. According to the Associated Press, American Hispanics are YouTube's fastest-growing viewer demographic, up 80 percent year-over-year.

Google also wants you to become entrenched in YouTube by participating, not just watching. The company announced a new feature this week called YouTube Direct, a citizen-journalism platform that pairs right-place, right-time amateur cameramen with big media outlets like ABC News, NPR, the San Francisco Chronicle, and the Washington Post. (To see how it works, check out the video below.)

For Google, this is less about some internal "push" for monetization than the simultaneous maturation of a lot of long-coming ad frameworks. "What you're seeing is the result of constant iteration, in the Google spirit," says Google rep Aaron Zamost. "For several months, if not years, the goal was simply: build the site. Increase traffic."

Now that there are a billion views a day on YouTube, he says, the company has shifted to attracting lucrative ad partnerships. "We got all those pieces in place a while ago. Now that we're optimizing those products, you're seeing the fruits of them become a much more comprehensive platform," Zamost says. It was almost exactly three years ago that Google bought YouTube; the results have been a long time coming. Says Zamost: "We've always taken the long view of monetization."