RampRate Takes Another Look at YouTube’s Costs

Two months ago, Credit Suisse came out with analysis claiming that YouTube was losing some $470M annually.  This led to headlines that YouTube was doomed, that all user-produced video sites were doomed, etc.  Some in the IP/Data community objected to the assumptions, including myself in this post.  But now in a new whitepaper, RampRate has taken those objections and put them into a more realistic model for YouTube’s cost structure. 

The report is well written and not too technical, and likely much closer to reality – I recommend a read.  To summarize, using data from Renesys and other industry sources, they peg YouTube’s peering at over 73% of its traffic and track down more realistic wholesale rates for the other 27%.  To me, these numbers appear to be in the right ballpark.  Of course, even after all those savings YouTube would still be losing money, but more like $174M on its own and probably much less than that when you add in the scale it gives Google for its bandwidth costs for search and its other applications.

Was it worth what Google paid for it?  I think Ramprate may swing a bit too far in the other direction on this count.  My sense is still ‘probably not’.  However, perhaps it’s not over just yet.  Even if they don’t turn YouTube into a profit machine on its own, they have learned a great deal in the process on how to deliver content at scales that were beyond comprehension just a few years ago and remain gargantuan relative to everyone else.  That knowledge may be worth far more to Google over the next few years than anything YouTube itself might ever accomplish.  Or it may not, we shall see.

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Categories: Financials · Internet Traffic