YouTube is still not a profitable business

Google is losing an estimated 0.5 billion per year running YouTube, on top of the 1.65 billion it paid in 2006 to acquire the loss-making business.

This is the estimated 2009 loss predicted by Credit Suisse analyst Spencer Wang. A rival analyst has since argued on technical grounds that the loss may be smaller, but only Google knows the true scale of the loss, which must surely run into hundreds of millions of dollars.

YouTube is essentially just a video sharing web site (with rating, commenting and some social networking). It was the first web site to achieve great success with this type of service, and remains the market-leader.

There's no proof that a video sharing web site like YouTube can be profitable, even with such high usage stats. Managing and surfacing video content implicitly carries a high cost of ownership, and requires an extremely big web infrastructure.

Google remains optimistic that their business model, in which revenue is simply earned from paid-for adverts on the web site, will eventually make YouTube a sustainable business proposition and hence a good acquisition.

At face value, YouTube seems like a web site which is much more expensive to operate than other web sites, but trying to earn money in exactly the same way as other web sites. And with all the interesting stuff happening within the frame of the video player (which may be in full-screen mode), I'm surprised anyone ever notices those irrelevant adverts lurking elsewhere on the page, let alone clicking on them. No wonder Google has been reviewing its advertising strategy for YouTube, and trying more engaging ad placement types like overlays and pre-rolls.

My personal favourite quote on this topic originates from the blog of a fellow industry insider with specialist expertise in the delivery of video content:

"YouTube, that incandescent tower of video Babel; monument to the sloughed-off detritus of our exponentially-exploding digital culture; a Technicolor cataract of skateboarding dogs, lip-synching college students, political punditry, and porn; has reached the zenith of its meteoric rise; and Icarus-like, wings melting; is spiraling back to earth."

03 April 2009

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