Putting aside the fun of having one's logo associated with hours of mind-numbing online entertainment, what exactly is the point of Google (Nasdaq: GOOG)'s continued support of YouTube Inc. ?
The more we analyze these companies, the more it's apparent their relationship is mutually unsuccessful. Despite Google's power over search and advertising, YouTube has yet to see meaningful revenues; and for its support of YouTube, Google is losing up to $1.65 million per day.
Those are the numbers derived by ThinkerNet contributor David Silversmith in a blog today on Internet Evolution. Using data from Google, Bear Stearns & Co. Inc. , Credit Suisse , and comScore Inc. , Silversmith found that Google is spending up to $2,064,054 a day, or $753 million annualized, to support YouTube's traffic. This is alarming, considering YouTube's revenue projections fall somewhere between $90 million and $240 million, according to analyst estimates. In that sense, Google is spending $1 to $2 on each YouTube visitor.
(Check out Silversmith's blog here: Google Losing up to $1.65M a Day on YouTube.)
Some of our readers and staffers have been discussing this on the message boards today, providing their version of what exactly this means for Google and the future of YouTube. While some suggest that this is just another example of Google failure outside the search and advertising space, others insist the YouTube model is strategic and that a real revenue plan will eventually come.
Regardless of how firm your faith in Google is, one thing is clear: When you watch a YouTube video, it is costing Google money. The more popular YouTube gets, the more money Google will lose. Somehow I don't think that's how a successful business is supposed to work.
Apart from making a dramatic shift in how YouTube works -- i.e., charging users to upload/watch videos -- Google's hopes of turning a profit on the site seem bleak.
So it might, in theory, be time for Google to rid itself of YouTube, a company it paid $1.65 billion for in 2006 -- but how? At this point, YouTube has proven to be something of a mess, acquiring one lawsuit after another, unprofitable partnerships, failed attempts at advertising, and the burden of paying for and supporting every wannabe Internet star's maniacal rants set to video. What company could afford to acquire YouTube's mess, and why would it want to?
As we dig ourselves deeper into this Web two-dot-hole, defined by building an audience without worrying about the revenue factor, it's becoming apparent -- all over again -- that this just doesn't work. If it did work, then YouTube wouldn't be currently backpedaling, seeking out network partnerships, ? la Hulu LLC , which had its revenue model from the start.
Does YouTube offer value to its users? Absolutely. But is that value enough to make it a sustainable, profitable business? Sadly, the numbers speak for themselves.
? Nicole Ferraro, Site Editor, Internet Evolution
Channel: Consumer Internet, Digital content & entertainment, Web 2.0
Tags: Blogs, Google, Video
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