Putting aside the fun of having one's logo associated with hours of mind-numbing online entertainment, what exactly is the point of Google (Nasdaq: GOOG)'s continued support of YouTube Inc. ?
The more we analyze these companies, the more it's apparent their relationship is mutually unsuccessful. Despite Google's power over search and advertising, YouTube has yet to see meaningful revenues; and for its support of YouTube, Google is losing up to $1.65 million per day.
Those are the numbers derived by ThinkerNet contributor David Silversmith in a blog today on Internet Evolution. Using data from Google, Bear Stearns & Co. Inc. , Credit Suisse , and comScore Inc. , Silversmith found that Google is spending up to $2,064,054 a day, or $753 million annualized, to support YouTube's traffic. This is alarming, considering YouTube's revenue projections fall somewhere between $90 million and $240 million, according to analyst estimates. In that sense, Google is spending $1 to $2 on each YouTube visitor.
Some of our readers and staffers have been discussing this on the message boards today, providing their version of what exactly this means for Google and the future of YouTube. While some suggest that this is just another example of Google failure outside the search and advertising space, others insist the YouTube model is strategic and that a real revenue plan will eventually come.
Regardless of how firm your faith in Google is, one thing is clear: When you watch a YouTube video, it is costing Google money. The more popular YouTube gets, the more money Google will lose. Somehow I don't think that's how a successful business is supposed to work.
Apart from making a dramatic shift in how YouTube works -- i.e., charging users to upload/watch videos -- Google's hopes of turning a profit on the site seem bleak.
So it might, in theory, be time for Google to rid itself of YouTube, a company it paid $1.65 billion for in 2006 -- but how? At this point, YouTube has proven to be something of a mess, acquiring one lawsuit after another, unprofitable partnerships, failed attempts at advertising, and the burden of paying for and supporting every wannabe Internet star's maniacal rants set to video. What company could afford to acquire YouTube's mess, and why would it want to?
As we dig ourselves deeper into this Web two-dot-hole, defined by building an audience without worrying about the revenue factor, it's becoming apparent -- all over again -- that this just doesn't work. If it did work, then YouTube wouldn't be currently backpedaling, seeking out network partnerships, ŕ laHulu LLC , which had its revenue model from the start.
Does YouTube offer value to its users? Absolutely. But is that value enough to make it a sustainable, profitable business? Sadly, the numbers speak for themselves.
Nice comments, James! and quite a number of monkeys you've gathered there (probably enough to make an army, I'd say...)
Here's what I think: if youtube can't make it, there isn't much hope for other video sites either and for the same reasons, whatever those are. And even Hulu is no exception. All we seem to be referring to here is David Silversmith's "per-day" estimate of youtube's ops costs, which is fine, but how do we know if other video sites (Hulu, Dailymotoin, Metacafe, MySpace and what have you) don't have the same financial issue? (unless, of course, David decides to run a few more estimates for other sites as well.. :) ).
Let's say youtube's current business model is anything but sustainable and financially sound, so what are some good options that Google-youtube has? I think it's not just a matter of finding the money-making model, it's more of a search for the model that will generate revenue in a long run while ensuring youtube stays competitive (considering all the competition out there, and I'm not just talking about US-based sites, e.g. if I want to, I could go and watch full episodes of stargate SG1 right now @ a Chinese site called 56.com and nobody seems to care about copyright there).
Youtube could try a slightly different approach like setting up a play-credit system, or youtube credits (say, $youtube), where general free users get a certain limited amount of credits per month to spend for watching whatever ad-supported content they like, but when they run out of their credits and want to continue the service they can upgrade to paid memberships such as "premium" or "ad-free", or else they'll have to wait 'til next month. Each video would have a different cost in $youtube associated with it depending on its quality, popularity and demand, etc. Users may also earn more $youtube by contributing their original content - the more times their content gets viewed the more credits they earn (earn enough points and they can even get to see new released movies of their choice)...
In my humble and perhaps unpolished opinion, that may work for content of the last era HOWEVER where we are going, popularity/ubiquity/ plus demand wins. Hoard the content all you want, the scope is limited.
Let's take consumable products Coca Cola versus Tab 2.0 with sugar in the raw in 2025. Coca Cola which has been king for 100 years sticks to it's traditional revenue model, distribution system and adevertising schema..and "PROTECTS IT'S BRAND" by not allowing for ads to be sold on top of their logo on the cans.
Tab which died and came back as tab2.0 with "sugar in the raw" sells advertisements on it's disposable flexible displays in place of its own logo. This allows for further penetration, cancels out the obvious cost of distribution plus there is ad revenue AND there is still revenue from the "pop" itself... becomes ubiquitous in what used to be third world markets. Sure, everyone likes the classic coca cola taste, but the tab 2.0's are essentially given away for free..or are cheaper than water, and the taste is better than Coke zero...plus you find them EVERYWHERE.
The market equilibrium of the latter is much greater than the first in this scenario, it just took a little while..or it seemed until the vertical incline of the law of accelerating returns hit the information superhighway.
Next Up: Tab2.0 allows for redistribution by ANY individual to add their own "flavor"..minus liability to the ORIGINAL "FLAVOR CREATOR" for a nominal fee(subscription)..it is now UBIQUITOUS and Revenue Later, hehe.
I've read infoirmation about google and youtube , just want to let you know that google will be be a a deadlost , google is doing a big investment in order to make youtube remain the best video sharing site , as many video sharing site is coming in the next 5 yrs as provided .
"Would a subscription model allow for videos that are currently considered illegal due to copyright infringement arguments? What I mean is, if there were a revenue stream, wouldn't copyright owners be foolish not to aggregate their video content to youtube rather than let it be uploaded by third party "fans" of the content?"
I suppose this is certainly one of the ways this could work. But then it leaves some questions unanswered: Would YouTube users still be allowed to upload content on their own? Could they still consider themselves "co-creators" and create video mashups? If not -- and YouTube just gets aggregated content from the networks -- it basically becomes Hulu, doesn't it?
okay - so Hulu is much more efficient and appealing when watching 15 pages full of search results on the Mary Tyler Moore Show....maybe they can somehow show canned pilots too? unless they already do. Found zero results on "I Married Joan" however..whereas there are some to many results on youtube. I also take back the slander of calling the studios "greedy"...I'd like to leave my option of getting a 'job' in that sector in the future open :)
Hulu has its place. no doubt. But it is a mere inlet, in an Ocean of youtube.
Magneticnorth pointed out some great points on the uncertain positive revenue streams of youtube!
Re: "What happened to content co-creation? ... and umm, what's so web two dot oh about hulu?"
These ideas of content co-creation and Web 2.0 are the driving force behind YouTube, a model which is clearly not working. These are all nice ideas, but the numbers don't add up. I agree that Hulu needs some more work to become more hip to the times, perhaps, but content co-creation? What is that, really, when you break it down? It's basically taking someone else's content, which you didn't pay for, and doing something cool with it.... until, of course, the actual content creators step in to tell you to back off or fork over some cash. Which they have and will continue to do... (another reason why the Web 2.0 free for all is witnessing its death).
[I'm also kind of amused by your T.I. example(s). I guess maybe I like Hulu because you couldn't pay me to actually listen to T.I. anyway.] ;)
Would a subscription model allow for videos that are currently considered illegal due to copyright infringement arguments? What I mean is, if there were a revenue stream, wouldn't copyright owners be foolish not to aggregate their video content to youtube rather than let it be uploaded by third party "fans" of the content?
Perhaps that is why Hulu is seeing a rise in prominence as a video source? Perhaps their "business model" has taken copyright into account from the very beginning?
Does anyone fully understand this thinking or methodology?
It was started by the greedy studios, of course. I think it'll be competing with cable onDemand and tivo...it was much easier to watch "Chuck" on there than it was on nbc.com however. What happened to content co-creation? Okay, maybe it'll aggregate my fav shows and clips from all NETWORK channels automagically for me. (like how Johnny Carson used to put the envelopes to his head). and umm, what's so web two dot oh about hulu? wait...I can browse to the blog section. they have forums, yay!! can I connect with other users?? THEY HAVE RSS!!!!!!!!!!!!!!
I searched for T.I. whatever you like and here are the results folks.
"Does YouTube offer value to its users? Absolutely. But is that value enough to make it a sustainable, profitable business? Sadly, the numbers speak for themselves."
I am reminding myself to come back to this in 2011 with a big I TOLD YOU SO :)..maybe 2012...
I agree with you. I use youtube first thing to look for video research. It is a number one dumping spot for high volume hits. I put up a 6 minute video for an education class on Bandura...and it has over 24,000 hits in 1 year. It was meant for a class of 15 but it continues to get hits by other educators around the world who find it helpful. That is its power. But it certainly is not a good business model.
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