Why is YouTube not able to monetize its dominant position?

At TechCrunch an excellent question: why isn’t Google monetizing it’s dominant position in online video?

If you look at YouTube’s numbers, one thing is clear: It completely dominates online video. YouTube accounts for 37 percent of all videos watched on the Internet and attracts about half of the audience, according to comScore. (And if you add in Google Video, that brings the total to 38 percent of videos watched). The No. 2 player, Fox Interactive Media (i.e., MySpace), accounts for only 4.2 percent of videos watched.

Yet when it comes to turning that market dominance into dollars, YouTube is holding back. Forbes estimates that YouTube will make $200 million in revenues this year, and $350 million next year.

But if you believe eMarketer’s estimate that online video advertising will reach $1.35 billion this year, that would mean that YouTube’s share of video advertising dollars will only be 15 percent (less than half of its share of videos watched).

I think there are 3 main reasons that YouTube’s share of video ad spend does not reflect its dominant position:

1. first of all most of the videos on YouTube are absolutely crap and no advertiser wants to be associated with crap
2. secondly, their CPM on video advertising is probably quite low.
3. And thirdly, YouTube’s fill rate is low as you can check for yourself, actually I watched 20 videos and not one video-ad (but plenty of search ads and banners/buttons)

Then what is Google betting on with YouTube? They haven’t paid 1.6 billion just for market-dominance in online video, there must be some trick up their sleeve we haven’t seen or figured out yet…