YouTube, the juggernaut of online video, continued its hot growth streak, with advertising revenue in Q1 ’21 of just over $6 billion, up 49% from just over $4 billion in Q1 ’20 and nearly double the $3 billion YouTube reported in Q1 ’19. YouTube’s ad revenue accounted for 13.4% of Google’s total ad revenue of $44.7 billion in Q1 ’21, up from 12% of Google’s total ad revenue of in Q1 ’20. YouTube represents almost 11% of parent company Alphabet’s $55.3 billion in Q1 revenue.

As in Q4 ’20, on yesterday’s earnings call, company executives repeatedly highlighted two themes in YouTube’s ad growth: Brands shifting their spending to YouTube to gain incremental reach beyond linear TV, primarily to younger audiences, and Direct Response performance advertising that drives specific performance metrics. YouTube didn’t offer a breakdown between the two.

Philipp Schindler, Alphabet’s SVP and chief business officer, reiterated his comments from the Q4 earnings call, that Direct Response was “practically non-existent a few years ago” and that growth in Q1 was “truly exceptional” and yet “just getting started.” He explained how YouTube wants to “make it easier for users to buy and make the discovery process overall a lot easier,” offering creators shoppable capabilities.

He and Sundar Pichai, Alphabet’s CEO, cited Dick’s Sporting Goods, Michaels arts and crafts stores, Clarins HK and Calvin Klein as examples of advertisers who had linked their product catalogs to their YouTube ads in order to drive higher e-commerce. Schindler highlighted how Search, Maps and YouTube work in concert with each other to make things simpler for users and deliver performance for advertisers.

YouTube’s success with Direct Response underscores how video advertising, and ultimately TV advertising, is evolving from purely top-of-funnel brand awareness and reach to also incorporate targeting and lower funnel conversion attributes traditionally associated with digital. Roku has echoed this same theme in recent quarters, providing its own performance-oriented advertiser success stories. And just yesterday an Amazon op-ed touted video advertising's full-funnel capabilities.

Analysts MoffettNathanson recently described a new “mid-top layer” of the funnel, in which spending in the U.S. alone could grow to $53 billion per year by 2025 driven by YouTube and AVOD providers. YouTube is forecasted to take two-thirds, or $35.5 billion of this spending. YouTube is also the biggest player in connected TV, with 120 million CTV viewers in the U.S. alone last December. Going forward we can expect YouTube to bring more of its Direct Response capabilities to CTV, further transforming advertisers’ ROI and targeting expectations for ads that run on TV.

No doubt at YouTube’s Brandcast NewFronts presentation next week we’ll hear lots more about its Direct Response success.

(As a side note, there was no mention of YouTube TV on the earnings call, and Alphabet hasn’t provided any update on growth since saying it had 3 million subscribers at the end of Q3 ’20. No news likely means there’s no good news to share on YouTube TV’s growth.)

We’ll be exploring how video and TV advertising is evolving at VideoNuze’s next Connected TV Advertising Summit (virtual) on June 9th and 10th. Registration is complimentary - sign up now!