What is YouTube’s Business Model?

The information is starting to trickle out. YouTube is hemorrhaging red ink. Credit Suisse estimated recently that YouTube will make approximately $240 million in advertising revenue – revenue that has come from a cavalcade of different forms of advertising, licensing and partnership deals.

Balance that income against estimated costs of over $700 million and you get a loss of more than $450 million.

What’s wrong with this picture?

Advertising Age magazine has just reported that YouTube is now selling advertising against 9% of its video views. That’s up from 6% a year ago. But those figures are still paltry. And it’s really no surprise since so much of YouTube’s content is user-generated, devoid of any significant interest and thus not really “monetizable” for advertising purposes.

No one – not even parent company Google, with a market capitalization of over $100 billion – is going to put up with such a scenario forever. The question is whether YouTube will ever be able to generate enough ad revenue to offset the huge bandwidth and storage costs associated with managing a humongous repository of video material. It’s a question that, even if Google’s own senior management doesn’t ask, the company’s shareholders should.

Paid subscriptions, anyone?

One thought on “What is YouTube’s Business Model?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s