(* Source: Jonathan Richards *) 

Eric Schmidt, the search giant's chief executive, said it "seemed obvious" that Google should be able to generate "significant amounts of money" from YouTube, on which hundreds of millions of videos are watched every day, but that as yet it hadn't figured out how to go about it.

In an interview with The New Yorker writer Ken Auletta, Mr Schmidt was cautious about how profitable YouTube might be, but said he believed the site could lead to "the creation of a whole new industry." He said his optimism was based on two facts: "We know people are watching it" and "We have the luxury of time to invest."

Google sees YouTube as a key plank in the strategy to grow its revenues beyond those it derives from the small text adverts that appear alongside search queries. The company is hoping it can use the site - which is visited by 129 million people each month - to expand into other types of web-based ads, including those which exploit the burgeoning popularity of internet video.

Last month Google said it would soon roll out a new type of video-based advertising on YouTube that would be different to the 'pre and post roll' adverts - shown before and after video clips - with which it has experimented to date, but declined to give details.

The company has also trialled so-called 'in video' ads on the site, which it bought for $1.65 billion two years ago, where a banner appears across the top of the screen while a video is played and test adverts are shown across the bottom, but the reaction has been mixed.

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