Another quarter and yet another blowout performance by YouTube advertising. Alphabet reported Q3 2021 results yesterday, including YouTube advertising revenue of $7.2 billion, up 43% vs. Q3 2020. To say that YouTube has been on a roll over the past two years would likely qualify as a top 10 understatement by any reasonable person’s judgement.

Consider that the quarterly growth rate for YouTube advertising for each of the past 8 quarters has never been below 30%, except in the hardest Covid period, Q2 2020 when it grew 5.8% (keep in mind many other companies’ revenues shriveled in that quarter). The Q3 2021 growth rate of 43% follows Q2 2021 (up 84%), Q1 2021 (up 49%) and Q4 2020 (up 46%).

The growth streak is all the more noteworthy because YouTube advertising has been over $3.5 billion per quarter since Q4 2018 except Q1 2019 (reminder, Alphabet first began breaking out YouTube advertising in Q4 2019, and in that report it also revealed Q4 2018 revenue). To put YouTube advertising's dollar growth in perspective, in Q3 2019 it was $3.8 billion. In Q3 2021 just reported, it was $7.2 billion. That’s an additional $3.4 billion of revenue, or 89.5% higher. In other words, YouTube advertising is growing very fast off of a significant base.

So what is going on at YouTube that is driving the outsized performance? As always, Alphabet's senior management was far from loquacious on the earnings call in detailing the drivers (ditto for explaining Alphabet’s overall business, which itself was up 41% to $65.1 billion in Q3). But the team continues to reveal just enough to get the gist of the transformation that’s well underway at YouTube. Here are the key outtakes from the earnings call.

Philipp Schindler, SVP and Chief Business Officer:
“Our direct response momentum remains strong, video action campaigns are driving more conversions than previous formats, and by adding product feeds to these campaigns, advertisers are achieving on average, over 60% more conversions at a lower cost than those without. Our brand business is also performing well.

As I said last quarter, YouTube's reach is becoming increasingly incremental to TV. We're helping advertisers find audiences they can't find anywhere else. Connected TV is driving part of this growth, is our fastest-growing screen. The precision of digital paired with the scale of linear is proving to be an awesome combo.

And even more so now with the expansion of video action campaigns for CTV. Advertisers can now drive conversions on the big screen, which brings me to help brands of all sizes continue to buy YouTube at both ends of the funnel to create future demand while they convert existing demand. And they're seeing upside.”

and

“And whether it's browsing for inspiration, product research or actually making the purchase a billion shopping sessions happen across Google every day, and they are happening on search, in YouTube, in image search, in the shopping tab, on Lens, and so on. So frankly, we are really encouraged by the long-term opportunity in commerce, and we are laser focused on helping business of all sizes connect with their customers.”

Sundar Pichai, CEO, added:
“Obviously, YouTube is unique in the sense that it's a true video -- native video-first product from day one. And so, you are dealing with new form and obviously as a Company, I think we have taken a long-term view, which is why you see the engagement on the product.

It's working at scale. Content responsibility has been our most important focus for the past many years. And beyond that, I think we worked hard to make sure both creators can do well. It's a great platform for advertisers. We've had strengthened brand.

We built on it. We drove this momentum in direct response. There's obviously in a newer opportunity for just shopping which we are investing in. And this represents an additional early but important area for us from an investment and growth standpoint.”

In short, YouTube is being converted, right in front of our eyes, into a lower-funnel juggernaut…a platform where performance-oriented advertisers are increasingly recognizing that their ads/video can be used to achieve their key performance indicators (e.g. purchase, subscriptions, sign-ups, etc.). As they prove the model to themselves they are directing more spending to YouTube advertising. And all of this is in addition to the top of funnel brand advertising that YouTube has long focused on with its massive reach.

The strategy shouldn’t come as a surprise to anyone…though the execution and the results should have everyone riveted. Google has been the clear leader in lower funnel digital advertising since it first began including ads alongside search results. Over the years it has dramatically expanded its branding capabilities for advertisers.

Now, looking ahead to the current fourth quarter, YouTube is set up perfectly to benefit during the most important shopping period of the year. So expect impressive Q4 revenue and growth numbers when Alphabet reports them in February, 2022 (they’ll only be tempered by the fact that they’ll be compared to Q4 2020 when YouTube advertising was up 46% to $6.9 billion). Just for fun…if Q4 2021 grows by another 40% (a HUGE if), then it would be a nearly $10 billion quarter of advertising revenue. $10 billion.

Ten plus years ago I wrote that "YouTube Has Been a Home Run for Google and the Online Video Industry." Fast forward to today and it is easily possible that if YouTube were a standalone company it would be worth north of $350 billion. That's over 200 times the $1.65 billion that Google acquired it for 15 years ago (here's a brainteaser: in less than a minute can you name anything that's worth more than 200 times what it was in 2006?)

As YouTube continues to grow, and migrate more of its viewership to connected TVs (note YouTube hasn’t provided an update on this front since it said 120 million U.S. viewers streamed YouTube or YouTube TV on a CTV in December, 2020), YouTube will help drive CTV to become more lower funnel and full funnel.

VideoNuze readers know that I firmly believe that CTV advertising will, over time, become a full funnel medium, which is already happening (here, here, here). In fact, while CTV ad spending today is mostly funded by a “follow the eyeballs” strategy in which advertisers are following viewers as they shift their behavior toward streaming, down the road, and armed by a trove of user data, the majority of spending will likely come from lower funnel campaigns that generate conversions, as YouTube is already doing.

As CTV’s model proves in, advertisers are going to open their spending spigots to full blast. There has never been a medium that marries TV’s benefits (sight, sound and motion) with digital’s (targeting, campaign/creative optimization, measurability, attribution, etc.). CTV can and will do all this, as YouTube - and others - are demonstrating.

By the way, if you want to learn more about CTV advertising, please join us at VideoNuze’s CTV Advertising Brand Suitability Summit (virtual) on November 16th and 17th. There are already 25 senior industry executives confirmed to speak across a range of topics, with more being added daily. Many thanks to Pixability, FreeWheel, Index Exchange, Mediaocean and Roku who are the initial sponsors. I’m also really proud to have GroupM, Horizon Media, Publicis and UM on board as Agency Partners. All paid registrants will be entered to win a 50-inch Roku TV and Smart Soundbar, both generously provided by Roku. Learn more and register now!