This is a private letter to Brad Hurley and Steven Chen. The YouTube founders don’t really respond to e-mails or prank calls, so I’ve decided to blog ’em a private letter. It has ideas that will save their company, so please don’t read this if you’re not them. Especially if you’re a competitor.
Are the regular readers gone yet? Are the venture capitalists reading another post now?

Okay- here’s the deal, Brad and Steve. Can I call you buy your first names? I have a love/hate relationship with you. Click “more” below if you want to hear the story.

Now it’s starting to sink in. You don’t have revenue to share, do you? You pay an estimated $1 million per month to host & serve your zillions of videos. But your revenue stream is friggin’ Google Adsense. That’s a joke! I run Google Adsense on my CubeBreak.com, and I make pennies per visitor. I don’t have a fraction of your traffic, but I also spend about $20 a month maintaining the site.So here’s my free strategic plan (and worth every penny). Mind you, I don’t know much. But I’m as immersed in the online video market as one can be without being employed fulltime in it. I make videos, I watch online videos, I manage a little video website, and I read about the industry and blog about it daily. I also, among other things, buy online media for a living. And I happen to have an MBA from the #1 rated school in America for entrepreneurial studies (I really hate people that brag about an MBA but I’m hoping to establish credibility here, so hear me out).

1) STOP Adsense. Sell your inventory to a clearinghouse or ad network. It won’t be much more profitable but it’s a better interim solution. I’ll bet Adsense doesn’t pay for the receptionist’s salary.

2) Find an advertising partner, or build your own ad group. Sign NO long-term contracts. Right now you just want to capitalize on the amazing amount of visitors you garner. Their eyeballs are worth something to you, and you’re currently picking up silver coins while Alladin’s lamp is in front of you.

3) Get with Revver and work out a deal so you can tag a single-ad frame at the end of each video. It’s not intrusive and you’ll get affiliate fees worth more than Adsense. Trust me. I make 5x on Revver affiliate fees on CubeBreak than Adsense.

4) Experiment with the “elasticity point of ads“… you’re assuming we won’t tolerate them, and you’re wrong. The better the content (JibJab) the more we’ll ingest ads without hating you or leaving the site. Here’s the key: Create a control group and 3 test groups that receive varying degrees of ads (banners, preroll, postroll, and even pop-ups). Watch to see what group starts visiting less frequently and staying for shorter periods. Now you’ll KNOW what we’ll tolerate for good content.

5) The more viral and popular, the more obstrusive you can be with ads. And you’ll be able to sell the popular content for a premium because it’s popular and because advertisers can pre-screen them since… they’re probably popular for a while. What would BudLight have paid for a post-roll at the end of “The Evolution of Dance.” Guys- it’s been seen 28 million times. 25 cents per view would be worth $7 MILLION DOLLARS. One video.

6) Show the market that you can garner your own revenue, and then enter into a strategic alliance with someone that can do this for you better. I get the sense you guys are in it for the good of the people. So were Larry Page and Sergey Brin, and they’re billionaires. And remember that Google entered the search market when NOBODY thought someone new could crack it. Get moving fast or you’re AltaVista waiting for a Google.

7) Share ad revenue with your creators- even if it’s just points for free merchandise. If you don’t do this proactively, someone else will (mark my words) steal your share… overnight. You won’t know what hit you. The content creators are why you have traffic, and the traffic is the reason you should be drawing significant ad revenue.

8) Get rid of the stuff that’s not owned by the uploader. I know this is tough. But if you start making money on copyrighted content, you’re going to need more attorneys than technical folks. And the disclaimers aren’t going to do it. This is Napster all over again.

9) Hold on, at all cost, to a decent piece of the equity of what you’ve discovered and either plan to ride it for 5-10 years or sell now. If I were a venture capitalist I’d be irate that you have had such high traffic and not created a decent revenue stream… even if I knew you were planning something big. We all know people are trying to buy you. If you’re not going to create a revenue model this summer, sell now. You’re white hot and you have tons of traffic. You’ll never be worth more than today until you generate income.

10) If you learn just one thing for this, all I ask is for one of the following: a) send an e-mail saying thanks, b) ship me a few YouTube t-shirts, c) feature one of my videos (username: Nalts) or d) give me 5% of the company.

Continue reading A Private Letter to YouTube Founders (Skip This Post) →