“Eventually we’d like to make money out of it.”

– Google CEO Eric Schmidt on YouTube

It’s been well over two years since the $1.65 billion acquisition and Google has yet to truly monetize YouTube. And while the company persists in claiming it has the “luxury of time” to develop the business model through which it will recoup its investment in the popular video site, it’s clear that time is running out. To wit, a report this week from Credit Suisse that predicts YouTube will earn $240 million in revenue in 2009. Which wouldn’t be half bad were it not for the fact that YouTube is on track to lose $470 million in 2009. The research house figures YouTube will rack up about $711 million in operating expenses this year–$360 million on bandwidth alone.

An unfortunate disparity, that. Is it one that can be corrected? Credit Suisse seems to think so. “In our view, the issue for YouTube going forward is to increase the percentage of its videos that can be monetized (likely through more deals with content companies) and to drive more advertiser demand through standardization of ad formats and improved ad effectiveness,” it explained in a research note. Of course, this is exactly what YouTube is doing. On Monday the company said it has agreed to an ad revenue-sharing partnership with Disney (DIS) that will see it putting ABC and ESPN videos on YouTube. A small first step, but one that could portend a trend. Especially, if as Google (GOOG) CEO Eric Schmidt says, the company hopes to eventually make money out of it.

Eventually we’d like to make money out of it.”

Google CEO Eric Schmidt on YouTube

It’s been two years since the $1.65 billion acquisition and Google (GOOG) has yet to truly monetize YouTube. And while Google CEO Eric Schmidt insists the company has the “luxury of time” as it searches for ways to recoup its investment in the popular video site, it’s clear the issue is gradually becoming more pressing. “We’re waiting for the innovations,” Schmidt said recently. “The innovation will come. We know it will come. We know it’s there.”

Could the “it” to which Schmidt refers be the new e-commerce platform YouTube is launching? Perhaps. Beginning this week, YouTube is embedding “click-to-buy” links in certain videos on its site, which refer users to affiliate services selling the music featured in them. “Click-to-buy links are non-obtrusive retail links, placed on the watch page beneath the video with the other community features,” YouTube explained in a post to the Official Google Blog. “Just as YouTube users can share, favorite, comment on, and respond to videos quickly and easily, now users can click-to-buy products–like songs and video games–related to the content they’re watching on the site.”

An interesting idea. And should it prove successful, it could begin to justify YouTube’s jaw-dropping $1.65 billion purchase price. “This is just the beginning of building a broad, viable e-commerce platform for users and partners on YouTube,” the company explained. “Our vision is to help partners across all industries–from music, to film, to print, to TV–offer useful and relevant products to a large, yet targeted, audience, and generate additional revenue from their content on YouTube beyond the advertising we serve against their videos. And those partners who use our content identification and management system can also enable these links on user-generated content, by using Content ID to claim videos and choose to leave them up on the site.”

We just want you to know that as we assess our capital allocation options, we will continue to adhere to the disciplined framework that I just outlined.”

– Time Warner CEO Jeff Bewkes, Aug. 06, 2008

Disciplined capital allocation is a key priority for Time Warner (TWX). That said, the company “may have overpaid” for Bebo, the social-networking site it acquired for $850 million in cash back in March. So said Time Warner CEO Jeff Bewkes in an interview with Portfolio.

Portfolio: And if you had to do it all over again … would you pay $850 million for Bebo?

Jeff Bewkes: Maybe. I’ll tell you why I can’t give you an answer. Because when you’re doing an acquisition in an auction, the core purpose of the auction is to try to get as much buyer and competing interest. When you look back at it, you then have to reveal–which I can’t to you–what I know about the other bidders. And you learn more of it after than before. The reason we said–when we kept being pressed by people, when they said “did you overpay or not?” we said we don’t know–is if our plans work out, we did not overpay. But then somebody says it’s compared to what you could’ve paid. If our plans work out less well than we thought, we would have overpaid by a few hundred million dollars. I’m not sitting here now–I don’t know if that’s the case–under a high case, we’ve actually made a lot of money on it. So it’s really too early to say. It’s kind of like saying, did Google (GOOG) overpay for YouTube? What was that number–$1.6 billion? They haven’t monetized that yet

Americans viewed some 11 billion videos during July, and they watched most of them on Google sites, according to the latest metrics from comScore. Of the more than 11.4 billion videos viewed in the month, nearly 44 percent were seen on Google (GOOG) properties. And 98 percent of those were viewed on YouTube, which continues to dominate the online video space. The remaining 55.9 percent was split among nine properties led by Fox Interactive Media and MySpace (NWS), which ranked a very distant second to Google, with just 3.9 percent of videos viewed. None of the remaining eight sites even cracked three percent.

So who’s watching all this video?

Answer: nearly 142 million U.S. Internet users–almost 75 percent of Americans with Internet access. On average they spent 235 minutes watching video in July. And they rarely spent more than 2.9 minutes on any one video, which makes perfect sense when you think about it. “Dramatic Chipmunk” is just five seconds long, and I’m told it’s the greatest video on the Internet.

Working with Seth MacFarlane, creator of the “Family Guy” animated series, Google (GOOG) will in September begin distributing “Seth MacFarlane’s Cavalcade of Cartoon Comedy,” a series of digital shorts
to be embedded on Web sites as free, ad-supported streams.
About two minutes in length, the shorts–which MacFarlane describes as “animated versions of the one-frame cartoons you might see in The New Yorker, only edgier”–will be syndicated through Google’s AdSense advertising system, which will target them at MacFarlane-friendly segments of the Web. Some will be accompanied by standard pre- or post-roll ads, some by “brought to you by” tags, and others by original commercials created by MacFarlane.

The shorts are essentially like little Assisted Ad Delivery Devices, intelligently targeting advertisements at those receptive to viewing them. “We believe the revenue could be formidable,” said Karl Austen, a lawyer who worked on the deal. “What is exciting is that this is a way to monetize the Internet immediately. Instead of creating a Web site and hoping Seth’s fans find it, we are going to push the content to where people are already at.”

Salesforce.com will be acquired in 2007. We believe the growing importance of online delivery of software and business services will make Salesforce.com (and particularly its AppExchange hub) a very tempting target to both large players (like IBM, SAP, Oracle, Microsoft) still struggling to scale down and move online, and consumer-heavy players (like Google, Yahoo, AOL) trying to ’scale up’ to the business market as a way to further monetize their online presence.”

–IDC Predictions 2007

Salesforce.com CEO Marc Benioff (photo, right) wasn’t kidding when he said in May of 2007, “We’re the Google of business.” The customer-relationship software pioneer this morning announced an alliance with Google (GOOG) that will see it integrating Google’s online services into the Salesforce.com (CRM) platform.

Christened Salesforce for Google Apps, the offering embeds Gmail, Google Calendar, Google Talk and Google Docs directly into Salesforce.com’s core sales force automation, marketing and customer-service applications.

The partnership is quite an endorsement of business-workspace applications delivered from the cloud. It’s also an aggressive move against Microsoft’s (MSFT) Dynamics Live CRM, Redmond’s customer relationship management software, which is integrated with its Office suite.

Together Google and Salesforce.com are clearly seeking to challenge Microsoft’s multibillion-dollar Office franchise. As Marc Benioff, CEO of Salesforce.com, told the New York Times, “The enemy of my enemy is my friend, so that makes Google my best friend.” And perhaps even a potential acquirer.