The Google – Youtube – Conundrum

You have a video that you want to post on the web. It may be just for you. It could be for friends. It could be for family. It could be for a company or a political campaign. It could a video that you want seen by as many people as possible.  Regardless of your audience expectations, do you have any expectation of paying for that video to be hosted ?  Of course you don’t. Neither does anyone else.

The reality is that all of us have the expectation of being able to post any and every video on sites like Youtube for free, with no limitation on audience size or location.   We have reached the point where Youtube in particular, Google specifically is subsidizing the majority of user generated content on the web.  20gbs PER MINUTE upload and who knows how much for viewing

Which leads to the question, what happens if they stopped subsidizing the cost of bandwidth for user uploaded video ?

What would happen to internet video ? What would happen to social media ? What would happen to the future of entertainment ? What would happen to the future of politics ?  How would it change how we use the internet ? The list of questions is a mile long. Would it be the best thing to ever happen to traditional media ?  Hence the conundrum.

The next question of course is “why would Google stop subsidizing the uploading , hosting and presentation of 80pct of the user generated online videos (excluding commercial sites) viewed in the US  ?”

The answer of course is : Because they had to. 

There are two certainties for the technology business in the US.  The first is that every leader falls out of the lead at some point. The 2nd is that every leader falling out of the lead gets torched by Wall Street and places a premium on stock price over free services and their users. 

Google has already established itself as a hall of famer. But nothing lasts forever in techland. Particularly subsidies.  What happens to the internet and how we use it  when those subsidies end  is a country song that will eventually be written.

42 thoughts on “The Google – Youtube – Conundrum

  1. I think, The Google is best
    FT

    Comment by busokak -

  2. Pingback: KAET Eight » Blog Archive » Google’s YouTube Problem

  3. My first thought when it comes to Google is that they want to Rule The World. I mena, look at their actions. Nofollow tags, linking strategies, SEO (black or white) and so on and so forth.

    I believe Google is getting old prematurely. Buying Youtube is nothing more than another way to keep “control” of the masses. I mean what google have to give you besides a good SE? Nothing. Becuse the keyword tool NECESSITY was born from a Google idea from the start. When there were no Google there was no keyword tools. It’s even easier, look at some so called “authority” sites and see what they really have to offer. There is nothing different that a lousy website put up together yesterday. Still, the main focus is on money for both. etc etc etc…

    IMO Google … sucks already.

    Comment by MaverickMoneyMakers -

  4. Pingback: Capitalist Punks » Twitter - Nobel Peace Prize for keeping service live? Really?

  5. If you asked 10 people on the street how much bandwidth costs or who that money goes to, how many could answer you? People will not pay for something unless they think they know where the money is going. +1 bro.

    Comment by resmitatiller -

  6. I would bet that Google could find a way to charge for premium video hosting in a way that businesses and power users would pony up. But still offer casual users free hosting of their singing dogs. True. http://www.cumleceviri.com/
    Maybe they could do something to preempt the point of diminishing returns by subsidizing revenue with something like the Hulu/Pandora approach where there’s a forced ad view to gain access to upload each new video. http://www.angielskopolski.com/
    Advertisers are nervous about putting their brand next to unknown content on YouTube. They are much more likely to advertise on Hulu.com which has high quality TV programming. http://www.canliuydu.com/ What happens to the internet and how we use it when those subsidies end is a country song that will eventually be written.

    Comment by resmitatiller -

  7. Mark! Dude, check out the revolution…The Free Throw Revolution! Here is the link to open your iTunes:

    http://tinyurl.com/nl9j7j

    iFreeThrow

    Shoot to the Rhythm!

    Comment by skylinejackson -

  8. I usually use yahoo. Very satisfied. If you need to upload to my server bandwith yet.

    Comment by fchunter -

  9. Question: Do you think that the introduction of Google Wave will play into this at all?

    Comment by Brady -

  10. Pingback: The Google – Youtube – Conundrum « ISP2.0 Blog

  11. Mark -

    This is a few months late, but I am new to your blog.

    I have a 14 month old company that makes the ACM (Automated Charging Machine). Just like an Atm gives you cash on the go, the ACM gives you a cell phone charge on the go.

    We have partnerships with malls, six flags, and are working on closing MGM right now.

    http://www.herculesnetworks.com

    I’d be interested in seeing what you think about this business.

    Comment by paulking7 -

  12. i reckon some of these comments about not getting things for free and how it all has to end just don’t get it. for how many decades have you been watching tv and listening to the radio for free ? (with ads stuck in the middle!) http://tomcooper22.blogspot.com

    Comment by tomcooper -

  13. youtube isn’t some cash burning startup dotcom with a flawed business model. google understands the value of it’s brand and all that traffic. google itself was spending more that it earned in it’s startup phase and it’s drowning in cash now.

    Comment by tomcooper -

  14. This is way off topic, but all the NBA related topics are closed, so I am asking it here. About 4 years ago Mark Cuban posted the Mavericks’ playoff record by each ref. For example, at the time the Mavs were 0-8 when Dan Crawford reffed their playoff games. Does anybody know how to find this data without going through each individual box score? Specifically I would like to know the Lakers record when Dan Crawford is one of the refs. He seems to be assigned to the Laker games when they need a win. The Lakers are 3-1 so far this postseason when he has officiated their games.

    Comment by stevo25 -

  15. If Youtube were to start charging for their service clearly they would lose many users but would there be enough paying users to make it a profitable business. My guess is yes and I think it would be very successful. There is a huge market and a growing one for business who want to add video to their website. They want a service that is as simple as Youtube but more professional looking. i.e. without the branding and the ads and links etc.

    Comment by iansnead | vzaar -

  16. Duh, go to the new leader. What did we do when Napster went down? Found the better alternative. And so on and so on….

    The downfall of Napster led to downloadable music getting more prevalent not less (and added movies to boot). It only gets better over time no matter who the industry leader is.

    Comment by jeffindallas -

  17. I feel that people have become spoiled with all these websites that allows us to post videos and music, as well as downloads things for free. They fail to look deeper at the big picture and understand that at the end of the day, to host and run a website cost money. As soon as one these major websites start charging for there service’s, watch how fast you will see the next big website appear. Its just a chain reaction, and just the way the web will continue to move. This is just some input from a recent college graduate who have seen first hand how the Google, Facebook, Myspace,You Tube,Twitter movement has influenced society as a whole, and have brought about changes no one would ever have imagined. So what is the next BIG IDEA going to offer us meaning society for free. The idea of making people pay for postings, downloads, videos and other things that can be offered for free on the web is going to be a large task to manage, but it can be done.

    Comment by desiredrivedetermination -

  18. The analysis by Credit Suisse about Youtube profitability has been roundly criticized by a lot of experts.

    It would be accurate if, say, Youtube was a standalone company.

    But Google is so large, and owns so much of its own fiber-optic network infrastructure crossing the globe, and is such a destination of traffic, that it is treated by the large ISPs more like an ISP itself than a consumer of bandwidth.

    Specifically, ISPs have peering agreements with each other. ISP-1 gives ISP-2 a discount on traffic going from ISP-2 to ISP-1 if ISP-1 reciprocates.

    Google has similar peering agreements with many major ISPs. So while Youtube is probably losing money for google, it’s most likely far less than the $500MM/yr the Credit Suisse analyst projected.

    Comment by encoderer -

  19. A quick search shows a 350GB harddrive for sale online for $50. That’s 15 cents per GB. At 20GB/min upload rate, 60 min/hr, 24 hrs/day, and 365 days in a year, it costs Google $1.6m to provide this storage space. So, the storage cost is basically zero for them and getting cheaper.

    What about bandwidth? I know less in that realm, but I know I get 15 mbps from my Time Warner Cable account, which is supposedly 2 Megs/sec max. While I do not get that speed in reality, I am sure Google would. I pay $100/month, so if I was continuously uploading all month, that comes to 50 GB per $1 of bandwidth cost, or 40 cents per minute for Google to handle 20GB per minute. That comes to $210,000 in bandwidth cost.

    I’m sure my tech pricing understanding is off by a bit, but how much? Obviously these are retail rates and there are support and othere costs, but even I’m off by a factor of 10, is it an issue? Can someone please correct me with more accurate data?

    Otherwise, I don’t understand the issue with this cost for Google.

    Comment by Conor Neu -

  20. that line you’re talking about is the breakeven line. essentially you should wind up your business when you cannot cover variable costs. if you can cover your V.C.s but not your fixed costs, you can stay in business.

    hell why do i remember that ~_~

    Comment by loucons -

  21. http://www.webgelisim.net

    Comment by koxper -

  22. This is the email thread between me and my brother discussing this blog post:

    Me:

    Hey Kirk,

    Thought you might like this article…

    Kirk:

    Good point, but is it subsidized, or just a line item expense underneath a much larger gross Ad Sense Revenue line that still yields an attractively positive Net Operating Income?

    Google isn’t an idiot, and they’ve been known to kill services that weren’t working in the past. True, Google may not always be number one, but I think this is more appropriate for site actually subsidizing instead of expensing their bandwidth.

    Thoughts?

    Me:

    I just wonder how far out it can scale and still be just a little line item. What if Obama pushes through a piece of legislation that ensures everyone in America will have access to a video recording cell phone by the end of 2010 and the uploads increase 10 fold within the following year.

    Does their ROI scale out with the increased overhead? Or does that overhead only justify itself up to a certain threshold? Could you scale it to infinity? If not then where’s the line? :-)

    Kirk:

    I’m sure they have some sort of formula like this:

    Gain or Loss per 1 Gig Uploaded = ({Adsense Revenue} /{Uploaded Gigs}) – ({Bandwidth Expense}/{Uploaded Gigs})

    Me:

    Yep…I just think the ratio starts to drop once you have enough noise out there where more and more videos are being uploaded vs. being watched. Maybe they could do something to preempt the point of diminishing returns by subsidizing revenue with something like the Hulu/Pandora approach where there’s a forced ad view to gain access to upload each new video.

    Kirk:

    I just don’t see there being more noise than watchers…I’ve definitely watched more videos than uploaded. And isn’t everyone exactly like me…hahaha.

    It’d be cool to see that old economic curve line I learned where it shows you exactly when to close the doors on your business whether now, in the short term, or way long term. I can’t even remember enough to search for that formula…oh well, maybe Mark would know.

    Comment by danieltardy -

  23. Google.com is the #1 most visited web site in the world. Youtube.com is #3.
    The only web sites that require payment that even rank in the top 200 all follow the same ideas. They let you shop, they show pictures of video of sex, or promise to help you find sex.
    If Google, or Youtube stopped allowing free access to their videos, they would instantly fall out of the top 300.
    There are literally hundreds of web sites that now allow free video sharing after doing their best to copy youtube. Sites like rr.com, vnm.net, or even youporn.com will gladly take the extra web traffic.
    It’s just like this blog, if it cost me even 1 penny to access, I probably wouldn’t do it.
    Youtube is a top 6 website in 20 countries. Somehow, all that traffic has to be turned into income.
    Out of every 20 pages viewed worldwide on the web, 1 of them is a youtube page. 5% of daily internet traffic. 20% of all internet usually worldwide log onto youtube.
    If a company bought a 10 second commercial that could play before each video, it would get more views than any superbowl ad ever would. That’s big time revenue right there if you can make it work.
    If Youtube or Google does start charging for their services, it will be the end of both google and youtube. Neither site lets you shop, buy porn, or promises to help you find love.

    Comment by senseichris -

  24. What would happen if an entreprenuer brought the YouTube business model to the “real world”…

    It could include a hair salon that doesn’t charge customers for a haircut, rather the customer must sit and watch ads while they are getting their service performed. Customer gets value and doesn’t have to pay for it. Hair Salon makes money from advertisers. Would this work?

    Or a Car Repair Shop that fixes your car for free while you watch infomercials in the lobby?

    Would you invest in a business model like this?

    Why does this model “work” on-line and sound risky in the context of the real world?

    Comment by summitleadership -

  25. Pingback: The Google – Youtube – Conundrum [Voices] | TECHNICK

  26. Pingback: The Google – Youtube – Conundrum [Voices] | TECHNICK

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  28. Pingback: The Google – Youtube – Conundrum | Mark Cuban | Voices | AllThingsD

  29. The free model has been pretty cool, the question is can it hook us hard enough so that income can be earned from the product or not. (Or is Google getting something else out of the video content? Information perhaps? Somewhere there must be a business plan that says ‘this is worth the negative cash flow because of…’ Same question faces twitter.

    Comment by Fred H Schlegel -

  30. The problem is that end customers have no idea what bandwidth costs. They are already paying for their ISP and they think that will cover it. There is video all over the place and lots of it is free, or at last it looks like it is free Why would anyone pay for bandwidth? If you asked 10 people on the street how much bandwidth costs or who that money goes to, how many could answer you? People will not pay for something unless they think they know where the money is going.

    Comment by earthdog7900 -

  31. My whole life is a Conundrum. I am in such a rut, I don’t know if even god can get me out this time.

    Comment by wildwhitewoody -

  32. While I agree with your premise that Google will be forced to stop hemorrhaging money to subsidize YouTube and the enormous bandwidth consumed, are you taking into account the constantly falling cost of bandwidth? Don’t you think at some point with the enormous infrastructure Google (and others) have and continue to create will reduce bandwidth costs to a more manageable (read profitable) level?

    Comment by uwskiguy -

  33. Ironic that many people (including me) shell out $25 per year for an upgraded account for just their photos with Flickr…

    Comment by isaacsabetai -

  34. Moore’s Law is still in effect for storage and seems to be in effect for centralized bandwidth. Most YouTube contributors could host their videos on $50/year capnel-powered sites and not run into the typical bandwidth or storage caps, which continue to rise. We can assume that Google has the advertising problem figured out for popular videos.

    I would bet that Google could find a way to charge for premium video hosting in a way that businesses and power users would pony up. But still offer casual users free hosting of their singing dogs.

    Comment by boscoh -

  35. We’re in an age of entitlement, Mr. Cuban. People expect to be able to put all their boring poorly-made videos online for free, just like 322 high school football teams feel like they deserve to be called “state champions,” every college student deserves As and Bs in every class, and i-bankers deserve bonuses regardless of how their funds perform. The old expression is “the value of a dollar,” but I think the day is just around the corner that the American people get a reminder of the value of a mile of bandwidth.

    Comment by Brad -

  36. does anyone think we make too much of the internet? in terms of the overall comsumer economy, is there that much value added?

    if google/youtube were to stop offering free video hosting (i.e. essentially letting the wheels of capitalism do their thing on the internet, at least insofar as online video), what would happen?

    well users would have to pay for content to be uploaded. in other words, it would weed out unsuccessful creators and consolidate the “industry”. only the ‘pro outties’ as mark mentioned in his previous post would survive.

    this would leave mom and pops and gradmas and teenagers pissed off, namely because the fun they had uploading goofy or family videos to youtube would now cost them money, and the majority would probably choose not to. dupliciate videos on youtube wold also come to an end as uploaders ask themselves, “why compete for viewers with another uploader by posting the same video when i can find a new video to post?”

    are the days of free internet coming to an end soon? and, is that a bad thing? this goes back to my first question: where is the value added? the internet now produces no [b]tangible[/b] value. sure, mommy and grandma and the teenagers get to view their videos and have laughs and smiles, and that is great. but the company hosting those videos can’t find enough valid revenue streams to keep this service going. something must change, and when that happens the first movers are going to make some cash.

    Comment by loucons -

  37. Credit Suisse says YouTube costs about $750M a year to operate, while they take in less than $250M. Losing $500M a year can’t continue for too long.

    This on top of the $1.6B Google paid for YouTube and billions more they paid for licensing rights to settle copyright infringement cases.

    Google probably has invested more than $5B in YouTube so far…with no profits in sight.

    Advertisers are nervous about putting their brand next to unknown content on YouTube. They are much more likely to advertise on Hulu.com which has high quality TV programming.

    Something has got to change at some point.

    Comment by dondodge -

  38. But, the cost of storing and distributing videos are also decreasing. Bandwidth cost will go down over time. Just look at the cost curve of PC, I wouldn’t be surprised that the cost for storing and distributing videos will have a similar drop.

    Comment by geekmba360 -

  39. i thought about this the other day:

    - dotcom era:
    “trust us, SOON we’ll have a huge audience and we’ll make tons of money” => many people had faith before the bubble exploded.

    - web 2.0 era:
    “trust us, we have a huge audience and SOON we’ll make tons of money” => youtube & facebook are the most obvious examples of faith in that approach. and the day Google/investors stop throwing money out the window will be perceived as a major crisis in the net economy, maybe as big as when the bubble burst in 2000.

    but crisis are here for good things:
    - the 2000 bubble burst taught us there was no magical “new economy”.
    - maybe the next crisis will put in everyone’s head that audience doesn’t equal money.

    this is not TV, people, this is the internet :)

    Comment by incolas -

  40. Well, if Youtube shutdown its B2C model, don’t you think the users themselves would figure out a P2P model that would work equally as well? Add a little bit of frontend and utilize a Slype-like backend, then empower it with the depth of content on ThePirateBay and all of a sudden instead of Google subsidizing it, ISPs around the world will subsidize it.

    Granted, this technology package doesn’t exist today, but if the intertubes have taught us anything its that users will create their own if corporate america doesnt provide it for free. That’s WHY consumers are used to free.

    If you don’t give it to them, they take it. But if you do give it to them easier and better than the pirates (i.e. Hulu) they will let you put some ads in there and make some money.

    Comment by jackstuder -

  41. Mark,
    A few months ago I wrote a blog post about this same issue….People have simply come to expect unlimited free access to on-line content and services.

    Check out the post here:
    http://ptcareertree.com/blog/?p=18

    I’d welcome your reaction.

    Brian

    Comment by summitleadership -

  42. You say every leader falls out of the lead. When Google is no longer able to offer free bandwidth via youtube, I believe that whoever the competitor is that knocked them out of the lead will fill this void. Does this seem obvious to anyone else?

    Comment by ckasek -

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