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.

The Last 10%

I’d like to touch on something that seems to be lacking lately, something very necessary to most aspects of life. The last 10%.

It’s incredibly easy to release a product. All you need to do is design something, manufacture it, and bam, you’re done. But releasing a really good product, the kind the revolutionizes things, requires a lot more. It requires getting every little detail right, every small thing perfect, to such an extent that people have to try to find something wrong with it. It requires the last 10%.

There are three products I can think of that are good example of the necessity of this. Now, I’m not going to comment on the quality or completeness of these three, but they illustrate why getting everything right is so important.

  • Facebook Platform – This product has the potential to “revolutionize the internet”, but will it? Look at the documentation. Now try to use said documentation. It’s missing several things, and there are several non-intuitive quirks that make it difficult to write apps (did you know that clickrewriteurl requires a clickrewriteform if it’s not inside a form?). They also change the API and tell people to “make sure their programs aren’t broken”. It’s called consistency. They should be catering to their developers when it comes to the API, instead they’re taking the stance of “you’re lucky we’re doing this for you”. While Facebook is probably big enough that they can afford to do that, it’s still a very poor business practice.
  • iPhone – I’ve yet to see an iPhone, but look at the media attention it’s been receiving. We have one of the most advanced all-in-on devices every created, and the main focus has been on the keyboard, and how “it’s so hard to type on”. I’m not saying this is true, false, or important, but it’s noteworthy that the media focus always lands on the bad. For a product to get great, or even above-average reviews, it can’t have a single flaw, because the media likes disasters better than triumphs (thus the phrase”no news is good news”).
  • YouTube – YouTube is not a technical triumph. Sure, it’s a lot of data and a lot of bandwidth, but there wasn’t a whole lot to it that wasn’t thought of before. Then why was is the such an astronomical success? A lot can be attributed to timing, but just as much is in the site itself. It did one thing, and was the first to do it really well. Upload your video, regardless of what it is, and let people view it. Done. Brilliant. W00t!

So next time you’re about to launch a potentially revolutionary product, think to yourself “did I finish that last 10%?”. Because if you’re not giving 100%, what’s the point in even trying?