Can YouTube Make Money?
Some people ask, “Can YouTube Make Money?” How can it make money giving away everything for free? It has to sustain such high bandwidth costs. It’ll die soon. But maybe not, only in Silicon Valley…
Now, more likely than 1999, eyeballs as a metric is back. The difference is, how expensive was it to obtain the eyeballs?
Some people quote a bandwidth bill of US$1m a month. They say YouTube will struggle.
But, is it really that expensive? That’s my question back to you.
I feel that the $1m is relative.
Let’s put it this way. I see YouTube as a Global TV Channel. So, in order to compare if a $1m/mo is expensive, I’d compare it with websites of the top newsites in the world:
Click here to see the Alexaholic fightout between Youtube, CNN, MSNBC, FoxNews and USAToday.
Within hardly a year of its existence, YouTube has burst out of nowhere to beat CNN.com so much so that it’s daily pageviews according to Alexa is nearly 2x of CNN.com. That’s a classic J-Curve, the all powerful exponential at work here.
If you were to bring up the annual reports and examine the cost-structures of any of these mainstream media organizations, I’m sure the cost of maintaining, producing and marketing their websites would have cost much more than $1m a month.
That’s where I’m coming from in my analysis. Yes, you may say that I’m comparing apples to oranges but this is what I think is the closest comparison off the top of my head.
For me, YouTube is re-writing the rules in the entertainment delivery eco-system. It is a cost-effective startup with a global reach that was built in the shortest amount of time, without the attendent costs involved in building out distribution the way mainstream media has to.
In other words, unlike cable-tv companies which had to incur huge infrastructure investments to build out their networks, YouTube saved a ton of money on such startup expenses and went straight to delivering great content. YouTube leveraged the global IP network already in place, the great excess bandwidth after the telecom crash-out of 2001, cheap harddisks, cheap processors and cheap operating systems to catapult itself into a position with greater global influence that any other company has every built before.
So, given this, which would you rather invest in? Youtube or the next cable-tv company?
I remember how Tim Draper from DFJ once remarked, “If some items on your P&L or Balance Sheet can be zero, please come talk to me.”
For YouTube, Infrastructure Buildout Cost = $0, Marketing Cost =$0, Content Development Costs = $0.
That’s three strikes my friend!
What is YouTube really?
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7 Comments, Comment or Ping
uzyn
Nice question and post title.
I may be wrong, but I feel like you’re begging the question. Instead of answering the question by suggesting how it can generate its revenue to offset the increasing bandwidth cost, you are showing how much it would have saved had it be a cable TV company.
In my opinion, that is synonymous to answering a question like “Will electric car save us more money from not having to buy gas?” with “Electric car would have saved more money to the world as a whole by doing less damage to the environment”.
Jul 30th, 2006
uzyn
Ooops. I didn’t know it is a multi-page article. My bad my bad.
Just noticed your suggested solutions at the end.
Sorry, again. My bad.
I didn’t know that it is a multi-page article.
Jul 30th, 2006
claris tan
Youtube’s strategy ,like many innovative startup, is to create something providing user value first, then business value where money will come later. How it comes remain to be see. It work like a loss leader initially. It remind me of Amazon who lost a lot of money initally but gradually achieve profitability as the business model become viable and copy by others.
In fact, it is rare to see company wanting to make money as first priority able to create innovative and original product. In a company where it is driven by business-man, that company can be profitable through measure such as cost-costing, etc but not able to creating innovative product since innovative project may have been cancelled because of uncertainty and lack of profitability justification.
After reading the book
Icon:Steve Job
I find that if Steve Job has been businessman first, technologist second, perhaps imac, ipod and toyStory movie may have never see the light of day. Why ? Because these project incur too much uncertainty and cost a lot to make. Moreover, it is surprising to learn that these project’s success is due to luck since no amount of planned strategy initally could guarantee its success. What Steve do is to break the rules to make thing happen.
Jul 30th, 2006
andrew wee
Hi,
good analysis of youtube.
there’re some additional factors to consider as well.
marketshare vs mindshare.
it’s obvious they have mindshare, but market share is another thing especially since google video is starting to muscle it.
i feel that youtube is still building critical mass. the soon-to-be syndicated tv show featuring youtube videos is perhaps the first main thrust into commercialization.
there’s still scope to go into DVDs.
and bandwidth costs are still cheapest in the US.
you have too much fiber optic going all around, there’s always opportunity to purchase bandwidth from a tier-2 or tier-3 ISP willing to let it go cheap.
i think the bandwidth calculations dont fully take in economies of scale too… if you’re buying $1m (or rather lots of bandwidth), you do have plenty of room to negotiate.
Jul 30th, 2006
xcalibus
Great article.
I’ve been thinking about how YouTube can make money and believe that they are very likely to go the Google way. That is, when users search for a particular keyword, say “sedans”, 1 out of 3 results might be an Advertisement video. Then the sponsors pay for each view that is generated.
With 100 million video downloads a day, say if 10% are ads, thats 10 million ad view per day. IF each ad brings in $0.50 per view, tats easily $5million a day in revenue..
Aug 31st, 2006
Jordynn
i dun understand these things they couldn’t rly be makin money unless you where paying fo’ watchu saw… but no u ain’t payin fo’ it so how they makin money?
Oct 16th, 2006
Alvin
I believe they don’t really make money out of Youtube….not that much anyway. Maybe a bit of income here n there from the advertisements…other than that, I can’t think of any others.
We didn’t get to see what’s their next marketing plan (or survival plan) since they got bought over by Google. Google can actually treat youtube as another Search Engine…..knowing what the viewers like and dislike. Otherwise, Google won’t be so stupid to buy over Youtube at such a price.
Dec 25th, 2006
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