Will the advertising revenue gap be filled with ‘YouTube Premium’? Google’s ‘Baton Touch’

Google changes direction due to downturn in advertising market, announces workforce reduction
Cookie collection will end within this year. Is this the end of personalized advertising?
Google, looking for a way out, significantly raises the price of ‘YouTube Premium’

Google, hit by a decline in advertising sales, has begun work to improve profitability in earnest. Google has revealed its intention to reduce its advertising business by carrying out a large-scale restructuring of its advertising division staff and starting to limit the collection of ‘cookies’ used for online personalized advertising. As the overall advertising market entered a recession, they boldly changed direction. The gap in advertising revenue is gradually being filled through Google’s video streaming platform, YouTube.

Google begins to sharpen its advertising business

Signs of a downturn in Google’s advertising business have been observed since early last year, and began in earnest after the implementation of new guidelines for the European Union’s (EU) Digital Services Act (DSA) in August of the same year. DSA is a bill to strengthen the rights of digital service users, and targets big tech platform companies such as Google, Amazon, Apple, and Meta as the main targets of regulation. These companies, which had been making profits through customized advertising, faced difficulties in securing advertising profitability after the implementation of DSA.

Afterwards, Google began to drastically reduce its business. A representative example is the large-scale restructuring news announced last month. At the time, The Information, a media outlet specializing in information technology (IT), quoted a source and said, “Google is considering reassigning or firing sales staff whose work has been automated by introducing new AI (artificial intelligence) tools.” It is said that in the future, employees in the sales department that manages major advertisers will be reassigned or integrated, and this includes the possibility of layoffs. While there is no reason to invest as many manpower into the advertising business as before, the company has revealed its will to improve profitability by saving labor costs.

Early this year, restrictions on the collection of ‘cookies’ used for online personalized advertising were also implemented. Cookies refer to data generated during activities within a web browser, such as searching or accessing a website. Until now, advertising businesses, including Google, have used cookies to display ‘customized advertisements’ that users may be interested in. However, starting on the 4th (local time), Google announced a plan to completely block cookie collection for all Chrome users by the end of the year. In response to the growing demand for personal information protection, especially in Western countries such as the EU, the advertising model so far has been boldly abandoned.

Making up for lost advertising revenue with YouTube

As the advertising business, which was the main source of income, declined, profitability naturally began to deteriorate. According to Google’s parent company Alphabet’s 2023 business report, YouTube’s global advertising sales showed sluggish growth from $28.8 billion in 2021 to $29.2 billion in 2022. In the industry, there is growing support for the analysis that sales in 2023 will not grow significantly. Google, which gave up its main business, began to look for new ways to increase profitability.

The first card that Google brought out was an increase in the price of ‘YouTube Premium’, a paid subscription service of video streaming platform YouTube. YouTube Premium is a service that allows you to watch videos without advertisements, and can be used for a monthly price of 10,450 won in Korea. However, Google suddenly announced last December that it would significantly increase the domestic YouTube premium usage fee to 14,900 won. The increase amount is as much as 43%.

The popularity of ‘YouTube Music’, which is included in YouTube Premium membership, also continues. It seems that a kind of ‘tie-in’ strategy has worked. According to the big data analysis platform Mobile Index, YouTube Music ranked first in the music platform market, recording 6,496,035 monthly active users (MAU) in December last year. Melon, which was previously ranked first, was pushed to second place with 6,238,334 MAU. The success of YouTube Music will soon lead to YouTube securing paid subscribers, which will result in improved profitability for Google. Related industries are paying close attention to the market changes that will be brought about by Google’s move to secure profitability.