In April, Credit Suisse analyst Spencer Wang estimated that YouTube would cost Google $470 million in 2009. The video streaming site would bring in $240 million, he reported, but cost $710 million to upkeep ($360 million of which is bandwidth costs). The site was, and is a “cash sinkhole,” Wang now famously proclaimed.
Today, Google has released some facts and figures that are supposed to convince us otherwise. They don’t necessarily do the trick. Three years after being sold to Google for $1.65 billion, YouTube reportedly serves “well over 1 billion views a day.” That’s a nearly inconceivable number of video streams, over 30 billion a month, and it is very feasible. By contrast, YouTube’s closest competitor, Microsoft, serves 547 million views a month, according to comScore. (According to the New York Times, comScore’s figures for YouTube suggest the site serves only 20 billion views a month, but this is beside the point).
The fact is, Google is trying very hard to convince us YouTube is a success. Sure, the site is absolutely an integral part of the Internet experience, it is everyone’s de facto video hosting and viewing site, and it is a mega search engine all in its own. But I’m not ready to call it a success. Streaming video is expensive. Anyone who’s ever signed a deal with Brightcove or Akamai knows this. Bandwidth is pricey. And any successful video endeavor will find an effective way to monetize its content to offset that cost. We’re talking about advertising here (or subscriptions, though I can’t see YouTube going that rout any time soon). Thing is, nobody wants to buy ad space on YouTube’s millions of user generated videos. There’s too much worthless homemade junk out there, and too much illegal content masquerading as legal.
According to CNET, Google boss Eric Schmidt now admits he overpaid for YouTube by about $1 billion. On the stand and under oath in May during the Viacom lawsuit, Schmidt said the company was actually worth between $600-700 million when it was bought it in 2006.
So Google is going to have to do more than throw monstrous figures at us if it wants to convince me YouTube is a success. It’s going to have to keep experimenting with its model, make synergistic deals with big media players, experiment with new technologies that will make serving video cheaper, and try to reach even more eyeballs all at the same time. At some point economies of scale will make YouTube profitable. Won’t it?