Google will lose $470 million w/ YouTube

by Steve L

Posted: 15 years ago 44 replies

INTERNET MARKETING

interesting article. i wonder what the Internet will look like in 10 years.

Do You Think Bandwidth Grows on Trees?User-generated content may have changed the Internet, but sites like YouTube are suffocating under the costs of storing it.

Everyone knows that print newspapers are our generation's horse-and-buggy; in the most wired cities, they've been pummeled by competition from the Web. But it might surprise you to learn that one of the largest and most-celebrated new-media ventures is burning through cash at a rate that makes newspapers look like wise investments.

It's called YouTube: According a recent report by analysts at the financial-services company Credit Suisse, Google will lose $470 million on the video-sharing site this year alone. To put it another way, the Boston Globe, which is on track to lose $85 million in 2009, is five times more profitable--or, rather, less unprofitable--than YouTube. All so you can watch this helium-voiced oddball whenever you want.

YouTube's troubles are surprisingly similar to those faced by newspapers. Just like your local daily, the company is struggling to sell enough in advertising to cover the enormous costs of storing and distributing its content.

Newspapers have to pay to publish and deliver dead trees; YouTube has to pay for a gargantuan Internet connection to send videos to your computer and the millions of others who are demanding the most recent Dramatic Chipmunk mash-up. Google doesn't break out YouTube's profits and losses on its earnings statements, and of course it's possible that Credit Suisse's estimates are off.

But if the analysts are at all close, YouTube, which Google bought in 2006, is in big trouble. As Benjamin Wayne, the CEO of the rival video-streaming company Fliqz, pointed out in a recent article for Silicon Alley Insider, not even Google can long sustain a company that's losing close to half a billion dollars a year.

But YouTube's problems point to a larger difficulty for many Web startups: "User-generated content" is proving to be a financial albatross. Two years ago, Time magazine named "you" its Person of the Year for doing your small part in fueling the Web 2.0 revolution. The magazine argued that by collecting and distributing the creations of millions of individuals, the Web is upending the way we learn about what's going on in the world around us.

There's no doubt this is true; you experienced the presidential inauguration through millions of pictures captured by ordinary people, and a lot of what you learn these days comes from articles put together by the anonymous hordes who power Wikipedia. Yet even though they've changed the way we live, sites that collect and share content produced by all of us haven't done the one thing many tech evangelists said they'd do--make a ton of money. Or, in many cases, any money...

The high costs of running YouTube. - By Farhad Manjoo - Slate Magazine

#$470 #google #lose #million #w or #youtube

AfteraDream 15 years ago

Google will figure something out....
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gareth 15 years ago

I said this would happen when they aquired youtube - others dissagreed.

But how to monetise it ?

The video ads suck - most people that watch YT vids dont click through - they are too busy watching vids.

Perhaps they should sell TV style ads in a web surfer friendly way ???

I dont think YT will work commercially.

I also think the whole video medium will be wiped out real fast when some new VR technology sweeps the world in a couple of years.
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oldwarrioruser1

15 years ago

Lets break this down.

Here is a list of things YouTube needs to do..

1. Delete 'Fred' from their website. I understand he has over a million subscribers, but his videos are probably the dumbest things on the internet.

2. Quit letting so many videos be posted. Make these videos meet a certain requirement, or have an approval process.

Way to much junk on YouTube that is just wasting space.

Like if a video is uploaded and after a week it still has 0 views (like thousands of the videos) they should get auto deleted

Thanks
2 replies

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GuerrillaIM

15 years ago

Originally Posted by korypearman

Lets break this down.

Like if a video is uploaded and after a week it still has 0 views (like thousands of the videos) they should get auto deleted

How will that help their bandwidth?

Thanks
2 replies

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oldwarrioruser1 15 years ago

Originally Posted by GuerrillaIM

How will that help their bandwidth?

I'm sorry I didn't make it clear I was joking in my post..

I was just naming things '"I" would do to YouTube..

Basically pointing out it's 90% of the site is junk..
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- oldwarrioruser1 15 years ago
  
  Originally Posted by Intrepreneur
  
  OMG who said Fred... I just watched one of the most annoying videos I have ever seen on youtube. The guy must be making a good amount of money though.
  
  He already guest stared on iCarly and they are talking about giving him his own T.V. show.
  
  Not to mention he has his own website with a clothing line.
  
  Not to mention his clothing is not only online, but his shirts are in Hot Topic stores.
  
  Not to mention he is only 15 and his videos are the dumbest thing to ever hit the internet..
  
  This is one of those things that make the, "Dumbest Ideas To Make Someone Rich" list.
  
  Thanks
  
  1 reply
  
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  oldwarrioruser1 15 years ago
  
  Originally Posted by Intrepreneur
  
  I guess he's using some sort of software for his voice?
  
  Might I add fair play to him, almost all of his videos have over 1million views.
  
  He just makes it high pitched in his video editing software.
  
  Dude the kids love him.
  
  Watch his video with 24 million views, "Fred Goes Swimming".
  
  Unbelievably dumb, but the kids love it.
  
  So in a way, I'm proud of the guy.
  
  Thanks
  
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ExRat

15 years ago

Hi Guerrilla IM,

How will that help their bandwidth?

Are their only expenses bandwidth, or do they also pay for server space storing files in case they are 'called'?

If someone does a search which brings up 10 results in their browser, those results contain data and maybe thumbnails - so even if the video is never watched, it can still use bandwidth.

These things might not be huge in isolation, but mutliply them by a few billion per hour and I'm sure it adds up.

PS love the forum ID and tagline.

Thanks
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GuerrillaIM

15 years ago

Originally Posted by ExRat

Hi Guerrilla IM,

Are their only expenses bandwidth, or do they also pay for server space storing files in case they are 'called'?

If someone does a search which brings up 10 results in their browser, those results contain data and maybe thumbnails - so even if the video is never watched, it can still use bandwidth.

These things might not be huge in isolation, but mutliply them by a few billion per hour and I'm sure it adds up.

PS love the forum ID and tagline.

Your right about that. I think they must have some sort of pruning system already for dead videos. I do notice a lot of old links to youtube videos result in a dead link.

I have just setup an online backup service and the initial costs are the equipment but that cost is soon overtaken with bandwidth. We will be adding video streaming to the system in a few months and our bandwidth prices will be crazy.

Glad you like my picture, some people say I look a bit like Arnold Schwarzenegger

Thanks

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Black Hat Cat

Banned 15 years ago

Originally Posted by korypearman

Way to much junk on YouTube that is just wasting space.

Like if a video is uploaded and after a week it still has 0 views (like thousands of the videos) they should get auto deleted

It's not the unwatched videos that's eating up their bandwidth.

Ultimately, they're going to have to switch to a pay model of some kind if they want to stop the bleeding.

Thanks
2 replies

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Dan C. Rinnert 15 years ago

They could do premium subscriptions too. For $5/month, watch all the videos you want with no ads. Or, maybe something similar for YouTube publishers. For $5/month, you can upload x videos and those videos run without ads (i.e., no competing videos/products advertised with yours). The latter would be good for marketers.
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kalynna 15 years ago

Originally Posted by blackhatcat

Ultimately, they're going to have to switch to a pay model of some kind if they want to stop the bleeding.

I think this is true. What if everyone who posts on YouTube had to maintain an account with $ in it. Every new video post cost a couple of cents. Very affordable for everyone and income producing on a massive scale for YouTube.

Then, everyone who want to take a YouTube video to post on their website needs an account and it cost them a couple of cents to take a video.

Affordable for everyone and income streams in while videos stream out.
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GuerrillaIM 15 years ago

I guess they will find a way to better target their text ads to videos and plaster them all over every video page.
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arjana 15 years ago

YT is a big promotional tool for google, helping to keep them far out in front of the competition, so althought it is losing them money, it' also making them money and helping to keep them in the forefront, in their other ventures. Also remember YT is still a fairly new company
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tomah 15 years ago

It could be solved by imposing video ads before you see the content, like cnet do.

No?
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Michael Oksa 15 years ago

Perhaps this is part of the reason why they are now offering extended content; to attract more traditional advertisers.

My guess is that they are on the low end of an upward earnings curve. As more and more people discover movies and TV online, YouTube may find that it's profiting.

All the best,
Michael
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Tyrus Antas 15 years ago

Unless you're in the search industry, advertising will always be a crappy business model. There's so much more interesting stuff Google could be making with Youtube...

Oh well, at least they can leverage Youtube's popularity to grow other services and products, namely Google Chrome.

Tyrus
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- alleycatnews 15 years ago
  
  google makes like $500 million in profits a MONTH. They can handle youtube losses.
  
  Really not that bad. They are already monentizing it. As that grows like adwords they will get closer to the black.
  
  Lots of ways to do it as well. Sell 15 second advertising spots before a person views the video like a lot of other places do.
  
  google/youtube will be fine. Where there are a lot of people there is a way to make money off it.
  
  Thanks
  
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- Frank Donovan 15 years ago
  
  I doubt that Google are unduly concerned with how YouTube may be "suffocating". Even with those figures quoted in the OP, Google still posted a net profit of $1.42b for the first quarter of 2009 (up 8pc year on year).
  
  And now that YouTube is officially the second most popular search engine (source: ComScore) after Google itself, it shouldn't tax the creative minds at Google too much to come up with ways of monetizing all that traffic, with synergies of service just one of several options.
  
  Frank
  
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Joseph Then

15 years ago

Google makes hell lots of money and if they buy Youtube, they must have a plan that we do not know.

And even if Youtube loses money, Google can afford to lose it. It seems to me that they are going to do something big, which is why they are still holding on to it.

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Franck Silvestre

15 years ago

I think the same thing.

Originally Posted by Joseph Then

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Minisite Nerd 15 years ago

One of the problems with monetization is that in order to do so, they have to throw up ads and use "interruption marketing" techniques just like TV commercials. But one of the main reasons people go online for content is because they don't want to deal with that.

I'm a little surprised they haven't tried to integrate YouTube and Google search a little more.
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- wbnetwork 15 years ago
  
  I would have never thought they would be losing money with You Tube.
  
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Fabian Tan 15 years ago

Here is the most interesting comment in the article:

""User-generated content" is proving to be a financial albatross."

On that note, it is interesting to note that while marketers like us are benefiting from Twitter and YouTube (mostly in non-concrete, immeasurable ways), these sites aren't actually profitable and do not even have a viable long-term business model as it stands.

"The videos that get the most clicks--and are thus most expensive for YouTube to carry--trend toward the sort of lewd or random flavor that doesn't sit well with advertisers."

In other words, the 'mechanics' of this sites are such that people don't actually go on sites like Twitter or YouTube to spend money or even do product comparisons.

That WILL remain the domain of search engines, Ebay, Craigslist, Amazon, shopping sites and even article directories.

It is easy to forget that although Twitter and YouTube are among the most popular websites, it is worth remembering that most people come online to do stupid-fun stuff like throwing pets on Facebook, not spend money.

Fabian
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- Loren Woirhaye 15 years ago
  
  Don't you folks think Google will sweep-into the pay-per-view
  model and destroy or absorb NetFlix, all the cable companies
  and pretty much take-over all AV media distribution?
  
  After all, who here thinks we'll be bothering with DVDs in
  10 years, or even 5? The main thing holding us back from
  sci-fi levels of information distribution might be the lack of
  worldwide rollout of fiberoptic cable.
  
  I think they might have that in mind. Between Veriizon
  and other Fiber infrastructure-owing companies and
  Google they are building an infrastructure to conquer the
  world. It's like gearing-up for war.
  
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talfighel 15 years ago

I don't get how Google would lose money with YouTube. The way Google makes SO MUCH money is because of all the advertisers. Any niche that you can think of, they have advertisers there.

People also advertise on YouTube their video on a pay per view or click and Google makes money there too.

Not as much as they are making with Google adwords and advertisers, but still enough to make money.

Tal
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- threestars.asun 15 years ago
  
  I don't think Google will allow losing money over YouTube. Of course, they will think of ways to overcome it. Google has a lot of advertisers and they make money from them.
  
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JohnWray 15 years ago

We all know Google to be frustrating at times with their "changes" (slaps) with what seems like increasing frequency. Like them or hate them, you have to respect the brain trust at Google. Don't think for a minute that they have been caught off guard or are scratching their heads wondering why they aquired YouTube. They not only have deep pockets, they have a big think tank. You can bet that there are plans to make it work to their ultimate advantage.
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Sam Smith 15 years ago

Here's one take on this.

The logical-illogical thinking behind it all is that:

1) While a web 2.0 property expands, gaining more and more users, its value increases.
2) So it's like on the stockmarket, or in real estate -- people are interested in seeing the net worth grow on paper, and there'll probably always be an exit available too.

For a lot of people, it doesn't matter if a house is leeching a mortgage with no tenants, ie. losing money, if the value is increasing.

A lot of people's perception of stocks is about the rising and falling of their values, with little interest in the yields.

So it's entirely possible that YouTube is making money while they lose money. I would say this is probably the case: they may lose $450 million, but if the value of the business expands by more than that in a year, they're still making money, in some odd ways.

Of course, the problem with this kind of thinking is when people realise there's no exit, and there's a crash -- the dot com crash being a good parallel.

Currently, the paper value is there firstly by precedent, and secondly by *potential* to earn money when in future it is likely that:

1) Advertising revenue will increase:
A) As more and more people develop sophisticated online sides to their business.
B) If the site takes a more agressive advertising strategy. The downside being that they may lose user-growth... but they could theoretically lock in a huge number of users and THEN increase the advertising shown.
C) More partner producers or whatever they call them.

2) The cost of providing the services will come down. This is a fairly reasonable expectation, as compression potentially gets better, and all hardware costs steadily become cheaper and cheaper.
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valerieSONORA

15 years ago

I've never heard of Youtube Fred before. See how you learn something new everyday? Sometimes it's completely useless knowledge. I agree the majority of videos on there are junk. I find videos of shows from channels I don't have, to watch sometimes. It's probably copyrighted, I'm not sure how it stays up. I've seen some accts. deleted for doing this but some are not.

Youtube does need some requirements and an approval process first. People can literally do all sorts of terrible things and post it online for anyone to see. Like the woman who was raped on video and a rapist posted it on youtube. She needed to sue Youtube for allowing that on. Their excuse of we get so many videos we can't monitor what goes up is pathetic. I mean you could literally murder someone and post the video on youtube and it could be up for days before enough people report it to be taken down. It's their site, their rep, terrible job.

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Fabian Tan

15 years ago

Originally Posted by valerieSONORA

Yeah that's another thing.

This is the bad side of social media and technology - basically you have people on trains, or just walking around outside, bored with nothing to do, probably frustrated with their lives, looking out for opportunities to film or photograph people who are 'interesting'.

It's like we're living in a human zoo!

Fabian

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Tonytsports 15 years ago

The problem with inserting ads into User Generated Videos is most ad networks will not approve such a thing. They are protective of the brands they represent. Companies are afraid of the negative PR they get from having an ad placed before some questionable material.
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Brawnydt 15 years ago

With Television dying, and the use of the internet rising every day, YouTube is well placed to become the next big broadcasting company.

Television networks are going to have to work more online as their meat space viewership continues to fall. What better way to capitalize off that than to have YouTube broadcast TV online. Acquire the rights to a popular show, throw some ads in it, and give it to the world online and watch your profits turn around.

Not only does youtube have a way better setup than any television network site I've ever seen to watch shows online, it's more popular and is a highly recognized and respected brand.

Sounds like a good idea to me, but I'm tired and it's not my millions of dollars, so it's easy to talk.
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Quentin 15 years ago

They will probably send it Public and make a few billion so I don't think you have to worry about them to much.

Q
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gareth 15 years ago

Funny - if the costs are bandwidth and storage related - in five years those same costs will be 10 - 20% for the same level of service.

Thats the nature of technology.

But in 5 - 10 yrs when Youtube maybe can turn a profit - will video be number one online any more ?

I thnk VR and AR will replace video as soon as the technology is good enough - which will be soon.
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- Eric Lorence 15 years ago
  
  Eventually we will have to watch commercial vid's B4 accessing or after so many videos.
  
  At this print YT is an amenity, but at those costs somethings gotta give.
  
  It's annoying on ABC news and others, but if people really want to watch they will endure it.
  
  If anything, the "Fred" vids could probably command some of the highest ad rates in a coveted demographic - "Tweens"
  
  Creative ad execs, if there are any left, could create ad vid's worth watching. Entertaining and indiscernible from a regular vid.
  
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Mark Brian 15 years ago

*cough*

Google should try Hostgator's unlimited space and bandwidth plan for only $7.95/mo

*cough*
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- tommygadget 15 years ago
  
  Originally Posted by Mark Brian
  
  *cough*
  
  Google should try Hostgator's unlimited space and bandwidth plan for only $7.95/mo
  
  *cough*
  
  That's pretty funny. It's even funnier if you know that hostgator is a reseller and does not even own their own datacenter.
  
  TomG.
  
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patJ 15 years ago

What youtube should do is come together with tv-networks and start a PPV service.
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Fabian Tan 15 years ago

If YouTube become profitable, we lose. More ads, less choices, and having to pay to access certain content doesn't sound like a great reason to be happy at all.

If they shut down (not likely), we also lose.

But perhaps the millions of man hours lost every day watching another video of someone beating up an innocent person will be saved.

Fabian
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- AndrewCavanagh 15 years ago
  
  Remember before flash was invented as a file type for videos which radically reduced the file size.
  
  Also remember when bandwith was really expensive and most people were on dial up.
  
  An advancement in either of these areas...file size for videos or bandwidth means sites like youtube suddenly will be using much less bandwidth and spending less money on it.
  
  Online video still has a few more leaps to make but it is the way things will go in the future.
  
  Also Google is a VERY innovative company and ultimately they only need one good idea to make a profit from YouTube (if they're not already...don't believe everything you read...there are 2 businesses going on here and Google is still making a PILE of profits).
  
  Kindest regards,
  Andrew Cavanagh
  
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  Toaster2 15 years ago
  
  I think this model of sharing video content will soon be replaced. The google should look on other sharing models like torrents etc. It should be on users to share. Not dependant solely on googles networks that is too old and not profitable way.
  
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Google will lose $470 million w/ YouTube

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