Why YouTube Can’t Cost $1.65M a Day

I know I’m a little late on the bandwagon, but I’m sick of seeing articles claiming Google is losing so much money from YouTube. They’re based on estimates that I find a little absurd.

Let’s take just one example – http://www.internetevolution.com/author.asp?section_id=715&doc_id=175123&:

Disclaimer: I’m going to use low-ball estimates to guess where Google stands. I am by no means a professional when it comes to estimating this, or even educated in such things, but I feel like Google has so many tricks up their sleeves that I have only slightly less credibility than Credit Suisse or Bear Stearns. I repeat: I am making up numbers

Bandwidth

Maybe I’m not understanding something here, but from what I know a mutually beneficial peering agreement doesn’t require paying for anything other than labor or hardware. ISPs don’t want to provide users with fast internet without having it bounce around too many places, as does Google. Assuming Google has a datacenter close enough to every major ISP to just peer to them (not unreasonable), their only potential non-labor cost is communication between their datacenters. But wait! Hasn’t Google been buying up dark fiber left and right? That means their costs are adding additional capacity and redundancy, plus network maintenance (hardware and labor). Like I said, I’m not a hardware guy, but knowing people who owned datacenters, this is how I understood it. Please call me stupid if I’m wrong, but I’m going to cut this down to $10,000 (~$3.5M/year).

Revenue Share

This one’s just BS…they’re counting “making less money” as an expense. Sure, it’s less money, but that’s a little misrepresenting, no? Plus, I assume the estimating companies already took this into account. $0

Content Acquisition

Google isn’t dump…I doubt they’re putting themselves in the red solely on content costs. Media companies also get a huge amount of exposure from being on YouTube that they can’t get anywhere else (Excluding TV shows and Hulu, but YouTube mostly deals in music videos anyway). So let’s cut this in half and say $360,000 (~$131/year, a lot of clams, and generous in my opinion!).

Hardware

“Given market estimates of about $2 per gigabyte”. Really? Google is famous for using off-the-shelf hardware. I can buy a 1TB HDD for $100, and I’m not buying a million of them. I’m not saying this quote isn’t accurate when you account for electricity, cooling, redundancy, etc, but Google is far above the average for all of these, so I feel like using a market estimate is unfair. I’m gonna cut this in half, so $18,000 (~$6.5M/year).

New Results

Let’s calculate Google’s break-even point for YouTube:

Bandwidth $10,000
Content Acquisition $360,000
Revenue Share $0
Hardware $18,000
Subtotal $388,000
Administrative Costs 38.4%
Math! x*(1-.384)-388000=0
Break-even Revenue x=$629,870

Now I’m not saying that Google is definitely making money off of YouTube, but $630K/day is less than Credit Suisse estimates Google’s daily revenue at, so it’s entirely possible they’re in the black.