Ever since Alphabet (GOOG) - Get Report (GOOGL) - Get Report bought YouTube for $1.65 billion in 2006, the American video-sharing site has been a huge source of revenue.

In fact, it's estimated that along with PC and mobile search advertisements, product or service placements on YouTube contributes to more than 60% of the firm's value.

Things, however, have taken a turn for the worse with Google executives struggling to address a growing exodus of companies pulling their ads off YouTube. This occurred after Alphabet failed to ensure extremist material on YouTube was free of any product plugs.

Before we consider the consequences of the scenario, it's important to take a step back and evaluate how things got to this point.

After major companies likeMarks & Spencer (MAKSY) , HSBC (HSBC) - Get Report  and McDonald's (MCD) - Get Report pulled their ads from YouTube, Google was staring at a major crisis in Britain.

The ads appeared alongside videos with sharply offensive content including homophobic and anti-Semitic messaging pushing violence and hatred.

This isn't the first such instance of a lack of concern about content. Online ads regularly appear alongside several forms of inappropriate material such as pirated movie platforms.

Recently, Facebook (FB) - Get Report faced similar flak for carrying fake news pieces and Twitter (TWTR) - Get Report has also grappled with corrosive measures by the German government.

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Curation of content and ads can be conducted by powerful tech-entities, but appearance and placement are major problems.

Essentially, Google and Facebook, which control the global digital ads market, operate almost as a combination of an advertising agency and media unit.

While traditional media outlets like the New York Times Co. (NYT) - Get Report or Gannett (GCI) - Get Report can physically ensure safety, a Google or Facebook can only action effective censorship or screening via tech controls.

The absence of manual intervention may push profitability, but a deeper sensitivity to human concerns and complexities often goes missing.

With the policing of online ads a priority for Google, the company is now willing to go the extra mile, ramping staff numbers and overhauling policies. Additions to the workforce will only push fixed costs.

And unless Google can bill for extra costs or hike ad rates, it will have to bear those costs.

Growth figures are also shrinking. Across the board, we've seen how Facebook is tackling the fake news issue, by rolling out its third-party fact-checking tool alerting users to disputed content.

Remember, digital advertising has its own set of highs and lows. It can deliver targeted ads to users surfing the Web for very specific and customized needs, but there are long-term chinks in the plan such as deceitful ad clicks and inaccurate measurements.

Going forward advertising behemoths like WPP (WPPGY) , Publicis Groupe (PUBGY) and Omnicom (OMC) - Get Report will be far more careful about their online advert models.

These are interesting times for Alphabet and Facebook. If both continue to expand workforce numbers in a bid to better manage compliance, business models will change, as will costs and margins.


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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.