Google is spending more than $2 million a day on YouTube -- and it is nowhere near seeing a return on that investment. Indeed, it may be losing up to $1.65 million daily on the video site.
According to financial firm Credit Suisse and Internet measurement provider comScore Inc. , YouTube Inc. is on track to serve 75 billion video streams to 375 million unique visitors in 2009.
That's the good news. The bad? To support those visitors, Google (Nasdaq: GOOG) will spend more than $2 million dollars daily -- to be exact, up to $2,064,054 a day, or $753 million annualized, according to Internet Evolution calculations of YouTube's costs derived from a range of sources, including Bear Stearns & Co. Inc. , comScore, Credit Suisse, and Google itself.
Now, Google does not disclose sales figures by division, so there is no definitive revenue number for YouTube. The range of estimates from financial analysts stretches from a low of $90 million (Bear Stearns) to a high of $240 million (Credit Suisse).
All the numbers are well below the estimated maximum of $753 million Google is spending annually, based on our calculations. So, depending on whose version of revenues you accept, Google is losing anywhere from $513 million to $663 million annually on YouTube, or anywhere from $1.4 million to as much as $1.65 million every day (see chart below).
Let's make it personal: The average visitor to YouTube costs Google more than a dollar ($513 million to $663 million in estimated losses divided by 375 million unique visitors).
In effect, Google is paying you to enjoy YouTube videos. In return, it gets the chance to show you some advertising. But adoption of those big-ticket items (YouTube sells homepage roadblock ads at $175,000 per day and branded channels at $200,000 apiece) has been limited, and Google AdWords image advertising remains the primary revenue source for YouTube.
A YouTube spokesman declined to comment on these figures or any conclusions of this blog.
Meanwhile, to deliver YouTube, Google is bleeding money in the following areas...
Bandwidth: If YouTube will get 375 million unique visitors in 2009 and each user downloads video at 400 kbit/s (based on figures from a range of sources), the cost to Google of YouTube bandwidth is a minimum of $1 million a day. This assumes YouTube is paying a minimum of 50 percent of the lowest market rate for megabit-per-second services.
Content acquisition: YouTube gets lots of user-generated video for free, but it has to pay for name-brand videos from sources like Sony/BMG and CBS. According to Credit Suisse, YouTube could pay up to $260 million -- about $710,000 a day -- to acquire content in 2009. Notably, Google just inked a deal with Disney to get short clips from ESPN and the Disney/ABC Television Group. More publicity for YouTube, more visitors -- but this is an expense, as YouTube pays royalties to Disney.
Revenue share: If you provide videos to Google and join its revenue sharing program, then you get a commission if ads are shown alongside your content. Credit Suisse estimates that YouTube will "share" away $24 million this year -- $66,000 per day.
Hardware, storage, software, collocation, electricity, etc.: Every minute, Google claims that 15 hours' worth of video is uploaded to YouTube -- equivalent to 86,000 new full-length movies weekly. Credit Suisse estimates the average video uploaded is 30 to 40 Mybtes and that YouTube is storing at least 5 petabytes of video. Given market estimates of about $2 per gigabyte, it's possible Google spends roughly $13 million -- $36,000 every day -- to store YouTube's stock in trade.
Other overhead: Add to the costs just mentioned all the overhead it takes to run any business -- sales, marketing, administration, all the elements that comprise cost of revenues. On December 31, 2008, Google spent 38.4 percent of total revenues on these items. Assuming the same percentage for YouTube and factoring high-end estimated revenue of $240 million for YouTube in 2009, the cost of YouTube revenues conceivably amounts to roughly $92 million, or $252,054 daily. If you prefer the low-end revenue estimate of $90 million, the cost of YouTube revenues would be $34.5 million, or $94,520 per day.
Now take this economy, in which advertising revenues are declining while all of YouTube's costs are increasing. The forecast is only that Google will start losing more money per day.
On the lighter side, you have to give Google credit for losing money with class! The first participant in its recent "Call to Action" for nonprofit partners raised over $10,000 in one day from a video. Classy of Google, yes. It might also be a tax write-off against its monstrous losses from YouTube.
— David Silversmith, Internet and Web analytics consultant, and former CTO of Carfax
I believe they will eventually find ways to use videos in a more efficient way.
Their first approach was to place ads in every video, but eventually they placed ads based on the type of video, but probably through metadata info. Maybe in a few months/years they could know what the video was about and place ads accordingly.
It's the fact that the content is what generates the ad revenue which is causing them to bleed $$. They spend so much $$ hosting, managing the content each day that the revenue it brings in is still ess. If they could find ways to eliminate some overhead, Youtube might become profitable.
I don't think that YouTube is a burden, it might be one of the more valuable assets that Google has... you need content in order to place ads. What they are missing is ways to identify good videos and be able to create channels to maybe have a: "funny animals" channel that people could "play" on their Google TV.
The article is an estimation, not real data release from Google... but yeah, it takes a lot of money to operate a site like YouTube.
I think they made a move for profit by increasing the amount of ads, but even more important, creating sponsored pages (creating ads for videos, for companies, etc) and that pays a lot more than normal pay-per-click.
I noticed Google is now shooting for 72 hours of video per minute uploaded and 4 billion views. You would think with all this free content being given to them for absolutely no charge they could at least break even. As far as ads are concerned the old broadcast model is still superior because you could walk away from it, go get a snack or something if the ad didn't appeal to you. Of course asking $90,000 to $125,000 a day to run a well produced ad on ones web site isn't exactly easy either.
I always thought that Google made a good choice of buying Youtube as I thought it would earn them a lot money. But today I came across an article that stated each day Google loses more than $1M due to Youtube. I hope this will soon fade and Youtube will become profitable in the near future, as more and more videos are uploaded daily, hence there will be more viewers who will see their ads as well.
Should YouTube enter a premium subscription model? Have pre roll ads on every HQ video (or sponsored videos) and have a premium where you won't need to see any ads (or maybe load faster, etc).
Thats too bad for Google. I think they made a big mistake by investing on Youtube. They should make it much for commercialized atleast now to make some sort of a profit out of it.
The ThinkerNet does not reflect the views of TechWeb. The ThinkerNet is an informal means of communication to members and visitors of the Internet Evolution site. Individual authors are chosen by Internet Evolution to blog. Neither Internet Evolution nor TechWeb assume responsibility for comments, claims, or opinions made by authors and ThinkerNet bloggers. They are no substitute for your own research and should not be relied upon for trading or any other purpose.
In recent years, software manufacturers appeared to be increasing the transparency of communication about bugs. The Internet has allowed for rather rapid delivery of software patches, and Microsoft Corp. (Nasdaq: MSFT) even releases details in its security bulletins and accompanying Webcasts.
Last week, a flawed McAfee Inc. (NYSE: MFE) anti-virus update overloaded enterprise IT staff as the updated signature file quarantined a crucial Windows system file and crippled unknown numbers of Windows XP computers -- causing the computers to shut down until they could be repaired and rebooted.
If Charles Dickens were alive today, his MySpace page would most certainly be headlined by “It was the best of times, it was the worst of times,” for that is the story of MySpace .
The information age is built upon data. Often data is structured in neat spreadsheets and databases. But more often, data is unstructured and stored in text documents, emails, Web pages, books, instant messages, blogs like this, and even Tweets.
Web 2.0 has created numerous scenarios in which enterprise IT policies are at odds with social media. But we are seeing the early signs that the social media vendors have realized that a new focus is required to sustain businesses as customers.
The Netflix streaming service may show us whether consumers value TV over movies, ad-sponsored over paid content, and whether they value good Internet video enough to encourage operators to offer premium services, as Google and Verizon propose.
Facebook's Graph Search may face some profound challenges and risks, first, because Facebook users haven't been thinking of their posts as product reviews; and second, because Facebook will now have to contend with the social-network equivalent of SEO "gaming" of results.
Apple may want to do a TV offering, but to meet its goal it would have to address three specific issues that have been exposed by earlier attempts to make Internet TV work.
Walk into the Coastal Federal Credit Union in Raleigh, N.C., and something is missing. Rather than human tellers, customers face videoconferencing ATM machines. Is this the future of branch banking?
The new UltraViolet online DRM model has people upset, but the question we should ask ourselves is whether we want a flexible model to harmonize content owner and content consumer rights, or a one-takes-all model that probably results in less online content.
The decision could discourage innovators looking to the past, and require companies to build from the ground up, leading to a new generation of stagnation in the IT world.
Netflix seemed to be a threat to all of TV, but with the current quarterly earnings report, it sure doesn't look as if that's true now. Netflix really proves that even Internet viewing of video isn't immune to profit and other business issues. This is a lesson we need to learn if we want a viable online video model.
Some say that exposure to violence in gaming, online video, etc., is creating a violent culture. Tom says it's not that straightforward. Rather than regulate violence, we should understand it better.
Confused about long forms and short forms? Well, this year, face-to-face help may be only a few clicks away. The IRS, as well as tax preparation agencies like TurboTax, have introduced new video conferencing services, designed to make it easier for individuals to get the help they need.
New York's Metropolitan Transit Authority is conducting a pilot test of digital kiosks to guide subway users to where they want to go more efficiently and at lower cost.
The whole Amazon.reader debate is a double-stupid. It's stupid to think that there's any e-book buyer who doesn't know Amazon's URL, and it was stupider to let ICANN launch the whole free-form TLD initiative to start with.
While NFC's original goal was to enhance mobile commerce applications, it is finding its way into a number of other uses, which is creating both opportunity as well as challenges for IT departments.
Enterprises would like to move to cloud computing but are hesitant because they are concerned about providers’ ability to secure company data. Here are some tips that help to ensure that if breaches occur, the business is not left holding the bag.
Edmunds separates customers into segments based on the info it collects on its site and from partners, and uses that to push out custom content, said Brian Baron, director of business analytics for Edmunds.com, at Predictive Analytics Innovation Summit.
The automotive website uses propensity modeling to target ads and customer registration forms, said Brian Baron, director of business analytics for Edmunds.com, at Predictive Analytics Innovation Summit.
Expert Integrated Systems: Changing the Experience & Economics of IT In this e-book, we take an in-depth look at these expert integrated systems -- what they are, how they work, and how they have the potential to help CIOs achieve dramatic savings while restoring IT's role as business innovator. READ THIS eBOOK
your weekly update of news, analysis, and
opinion from Internet Evolution - FREE! REGISTER HERE
Wanted! Site Moderators Internet Evolution is looking for a handful of readers to help moderate the message boards on our site – as well as engaging in high-IQ conversation with the industry mavens on our thinkerNet blogosphere. The job comes with various perks, bags of kudos, and GIANT bragging rights. Interested?
To save this item to your list of favorite Internet Evolution content so you can find it later in your Profile page, click the "Save It" button next to the item.
M2M: Rise of the Machines? Not Yet David Weldon In the 1970 science fiction thriller Colossus: The Forbin Project, two giant supercomputers from the United States and Soviet Union secretly join forces to take control of the collective nuclear might of the two countries. In the film, the two machines discover each other's existence, communicate back-and-forth, share their collective data, and cut their human creators out of the process. It is the ultimate example of machine-to-machine communications, or M2M. CLICK FOR MORE
M2M: Rise of the Machines? Not Yet David Weldon In the 1970 science fiction thriller Colossus: The Forbin Project, two giant supercomputers from the United States and Soviet Union secretly join forces to take control of the collective nuclear might of the two countries. In the film, the two machines discover each other's existence, communicate back-and-forth, share their collective data, and cut their human creators out of the process. It is the ultimate example of machine-to-machine communications, or M2M. CLICK FOR MORE
Email This
