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Wither YouTube?

This analyst doesn’t seem to think that YouTube’s business model is sustainable:

So what does this mean? It seems safe to assume that YouTube’s traffic will continue to grow, with no clear ceiling in sight. Since the majority of Google’s costs for the service are pure variable costs of bandwidth and storage, and since they’ve already reached the point at which no greater economies of scale remain, the costs of the business will continue to grow on a linear basis. Unfortunately, far more user-generated content than professional content makes its way onto the site, which means that while costs grow linearly, non-monetizable content is growing geometrically as compared against the monetizable content that YouTube really wants and needs to survive. This means less and less of YouTube’s library will be revenue-contributing, while the costs of delivering that library will continue to grow.

What are Google’s options?

Google could take a lesson from its neighbor, Hulu, and focus only on proprietary content with existing consumer loyalty and real monetization prospects. With its massive audience, this is a viable option, and a direction in which YouTube has already taken some baby steps. Axing user-generated content would seem to be anathema given the site’s roots, but it may be the surest way of putting the business into the black.

Alternatively, YouTube could implement a subscription structure for the site, either monetizing certain members-only content, or requiring users to create a paid account in order to contribute content. With so many marketers looking at YouTube as part of their viral strategy, this too could be a viable option.

I’ll be honest, I would pay for YouTube if they went to a subscription model provided the price wasn’t outrageous.  I would pay 40 or 50 dollars for a year’s subscription if it allowed me to embed video on my blog for all to see.  It’s a shame it doesn’t appear that the business model works, becuase YouTube is damned useful.

3 Responses to “Wither YouTube?”

  1. John H. says:

    Youtube’ll come up with something. Hopefully something smarter than this.

    These businessfolk are the same ones that were blindsided by the economic crises an Austrian could have seen a decade in advance. Pardon me if I don’t take their opinions particularly serious.

  2. Robb Allen says:

    Interesting. I’ve thought about that issue practically verbatim. YouTube, while fun and useful, has a very small signal to noise ratio.

    Granted, with bandwidth continuing to open up, more and more people will be able to put their videos on their own servers. Technically, I have the bandwidth to support my own videos, I just don’t want the hassle of it.

    As someone who has been a professional in the Interweb Tube Business for 15 years, who survived the ‘Dot Com’ phase because he recognized value and how most companies did not provide any, I’m not surprised about Google’s success – I do wonder, however, how long it can last. They continue to provide more and more services yet seem to not deliver any more revenue generation.

    Not saying they’re going to go belly up next week, but it is interesting to watch and learn.

  3. MicroBalrog says:

    “t. Since the majority of Google’s costs for the service are pure variable costs of bandwidth and storage, and since they’ve already reached the point at which no greater economies of scale remain, the costs of the business will continue to grow on a linear basis.”

    This is based on the assumption bandwidth and storage costs per megabyter remain static.

    Can anybody spot the error?

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