For a long time, everyone asked how YouTube planned to make money. And ever since , everyone has asked how Google is going to make money on such a massive investment.

We’re starting to see some signs of what direction this is heading in. There are several challenges to overcome with a user generated content-driven video site. The first is that advertisers are terrified to put ads in front of a video that could be about… anything. The second is that video advertising in general is so new that there are very few standards, and in fact video ad creative itself is often in short supply.

Therefore, YouTube is looking to bring in “professional content producers” such as Revision3 and allow them to sell their own ads on YouTube – both video ads and display advertising – with the idea to do a revenue split.

Advertising Age :

It’s easy enough to envision where YouTube could go from here: Content creators could not only sell ads that would appear next to their content but also extend the reach of those ads to third-party-created videos on YouTube. One hypothetical: Revision3 sells ads to GoDaddy to run not only on YouTube pages showing “Diggnation” videos but also on other third-party, tech-focused videos. Under such a deal, revenue could be split three ways: among Revision3, YouTube and the producers of the third-party content where the ad ran.

HipMojo.com in pointing out the requirements that advertisers look for and the challenges of making this initiative work on YouTube:

Advertisers look for a number of things. For content owners to succeed on YouTube, and in generating revenues in general, they will need:
- reach, as measured by audience size
- relevance, as measured by demographics
- frequency, as measured by publishing cycle
- fit, as measured by content. This can also include surety of content.

On the plus side, YouTube holds the opportunity to be the one-stop platform for video content producers and video advertisers. As Podcasting News : “This move mashes up their video and ad managing infrastructures in an intelligent way – offering content producers a complete solution.”

However, Startup Meme thinks that rather than a serious ploy to make money: “If you take a closer look at the recent Youtube annotations feature, which allows users to annotate and add bubbles and text to the videos, you would understand that to Google relevance in Video Search is more important than Video Revenues.”

I think that NewTeeVee is however, in stating that, “YouTube gets more than money out of the deal, it gets exposure in the ad agency world, and offers high-profile content creators another reason to join the YouTube family.”

Indeed, “CEO Eric Schmidt stated that monetizing YouTube remains a company priority. He also said Google would continue to experiment with new formats until it finds the right mix.”

I find the fact that advertisers can buy both display ad space as well as video advertising as one of the more intriguing parts of this story. YouTube is trying to bring in professional content and fend off the likes of Hulu and Veoh as premiere destination video sites.

As more money gets invested in creating web-only video, having established ways to bring back revenue to content creators based on both video and page views is going to be increasingly important. In other words, demand for quality video on the Internet is only going to increase, and YouTube is trying to position itself as a place where quality video creators will continue to go to publish and be seen by a large online audience.