Analysts keep bringing it up. Reporters do, too. How much money is Google losing on YouTube? And can they afford it? The lingering question that affects Internet marketers the most is what happens if Google decides they can't afford it. If you are using YouTube for marketing, should you be worried?

First off, no one knows how much YouTube costs Google, nor how much revenue it brings in. Given the cost of servers, storage, and bandwidth for streaming so much video over the Web, it's certainly true that it costs them a bundle--far more than they ever expected.

Image representing YouTube as depicted in Crun...

Image via CrunchBase

It's likely that YouTube has become as popular with video watchers as Google expected, but they miscalculated its appeal to the advertisers whose money offsets the costs. Advertisers have not yet flocked to be shown side-by-side with amateur content, while services that show Hollywood videos, such as Hulu, have flourished in comparison.

Google continues to tweak its offering, but admits that the right formula has not appeared yet. The question is whether Google can afford to lose this much money, with it ever increasing as long as that formula remains elusive.

It probably can afford it for the foreseeable future. The question is whether it will decide to, which might depend more on attitude than data.

YouTube was expected to be a huge advertising success. I mean, how could it miss? Videos are the most popular form of media and YouTube's model created the content for free, so how could advertisers resist all those eyeballs? But somehow, they have, making YouTube an immense disappointment for Google.

On the other hand, listing off the other free content plays, such as Gmail, Google Docs, and the forthcoming Google Wave, which one of those is profitable? I'd bet that none of them are. And, they were never expected to be, at least not by now.

If Google can pay the freight, and if Google can change its attitude about YouTube, so that it's a long-term play, just like those other user-brings-the-content initiatives, Google can emerge as a leader in video and will eventually figure out the advertising plays for all of them (or figure another way to make money). If Google succumbs to a disappointment in YouTube not shown in Gmail, for example, it might miss out on a big market down the road.

So, if you use YouTube for your marketing, I wouldn't be terribly concerned about what you hear. Yes, I'd be posting my videos on Vimeo and other sites, too, just as a backup, but I wouldn't be worried that YouTube will disappear any time soon. If anyone has the deep pockets to suffer through YouTube's expensive adolescence, its Google.

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July 27, 2009





Mike is an expert in search marketing, search technology, social media, publishing, text analytics, and web metrics, who regularly makes speaking appearances.

Mike's previous appearances include Text Analytics World, Rutgers Business School, SEMRush webinar, ClickZ Live.

Mike also founded and writes for Biznology, is the co-author of Outside-In Marketing (with James Mathewson) and the best-selling Search Engine Marketing, Inc. (now in its 3rd edition, and sole author of Do It Wrong Quickly, named by the Miami Herald as one of the 11 best business books of 2007.






Comments(13)

I don't see YouTube going anywhere nor losing its effectiveness. I'm going to continue using them for my marketing efforts because they have the highest viewership for my ads. I think Google can tweak some things if they are losing money but gaining more revenue shouldn't be a terribly difficult thing for them.

Perhaps youtube will start charging a small membership fee or something if they cant make up the difference. Say, 3 dollars for a lifetime membership and you can still view for free? Perhaps this is something they are considering.

Google can definintely afford to lose some money on youtube. but for how long is the question and if and when they realize the site wont be worth it what will they do? close the site that has a massive list of followers?

Therein lies the challenge for most companies that offer up content. Content requires advertising money to offset bandwidth costs, and advertising only comes to those with quality traffic. Success is a double-edged sword, regardless of the type of content: editorial, photographic, video, etc.

What makes matters worse is rights-protected content, where you not only have to pay the freight but also share the ad revenue, or pay per play, or any host of other sponsorship deals.

Fortunately, Google has time, cash, and experience turning "free" into a sustainable model, and I think we're starting to see viable models emerge. On the bright side, research has shown younger generations realize nothing "free" is really truly "free" and have started to cope with ad-sponsored entertainment.

If the bleeding became too much, Google would have a few choices, Will.

They could bring in partners that have quality video content, such as TV networks. Or they could go the route that HBO did on cable, which was to become a producer of content. They could begin to charge businesses for uploading commercially-oriented video. I don't think they are going to shutter it unless they have no other options, which is why I don't think Internet marketers using YouTube need to worry.

YouTube is too popular and will always be popular no matter what. Either charging a small fee for subscription or bringing in TV networks will work. I'm sure Google can easily come up with a solution.

I think they should ditch google video to save a few pennies as the layout is not too user friendly.

If they turned it into a subscription site then people would just migrate to another site of which their are hundreds but just not well known.

Maybe just put a cap on the amount of video people can upload to youtube but if they want to add more videos to their channel then they have to put adverts on their channel page which can be selected by the user, a bit like google adsense I suppose.

Re-brand it to GoogleTube... at least it has brand value. How many people actually know google own their home videos of lil' Benji doing his first crap?

Google will never lost money with youtube, they will just use it as a Tax write-off.

aha, re-brind it as GoogleTube and condition the videos to begin with ads, that way we have to watch the ad. This is not good for me but good for business

Google has invested to much in youtube to drop it. Youtube is to important for them and killing it would mean that they have been unsuccesfull. It's like MS they just keep investing in some project untill they do make money. Xbox was an example of that, it took them years and years to make some money. The same does apply for youtube and google.

Google has its hands everywhere on the internet I am not surprised!

YouTube is larger than MSN currently and continues to grow each month. Hard to believe than Google is loosing money on YouTube even if we do not know what the costs are. It is definitely is a traffic magnet.
There is a study that predicts brownouts on the internet in a few years due to bandwidth usage caused by
YouTube.

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Search Engine Guide > Mike Moran > Google's YouTube Money Pit