So, where is YouTube going?

YouTube is quickly becoming the poster child of what I (half-) jokingly refer to as "Bubble 2.0". With millions of users, endless amounts of hype, and bandwidth charges which reportedly run $1 million a month YouTube critically needs to figure out how to start monetizing its tremendous potential.

To their credit, YouTube management is trying to think creatively and coming up with a variety of different business models and approaches. Obviously, they are using the standard text ads but this isn't enough to generate serious revenues.

YouTube has been talking about providing "pre-rolls", or short 10-20 second advertising spots before the clips. I've been reading some interesting discussion about why this will or won't work, and whether it has the potential to turn YouTube into a company with $150 million a year in revenues or $20 million a year.

More intriguing is the site's recent foray into channel branding.  YouTube has been offering the ability to define content channels for a while, but they have recently tried to harness the approach for commercial purposes. Content owners can use their branding channel as a new marketing avenue by providing music videos, trailers, and advertising materials in the form of YouTube clips (with all the Web 2.0 goodness that implies).

Unfortunately, YouTube's choice for its first celebrity channel was Paris Hilton, currently hawking her debut album. By most accounts, Paris's album is a dud and the same can be said about her YouTube channel. Still, the idea has a lot of potential, especially if YouTube manages to sign some heavy-duty content partners.

Personally, I would imagine that the company will have to utilize a multi-faceted business model. Traditional webvertising and branded channels (especially of the non-Paris Hilton variety) seem like no-brainers to me. To some extent, the same can be said about embedding ads in the videos themselves.

This is a thornier issue, since it will force YouTube to institute some kind of mechanism for quality control, or at least some way to sort content into different quality categories to best maximize its CPM/CPC potential.

It will be interesting to see how it pans out.