New Estimate: YouTube's Bandwidth Bill Is Zero

from the remember-all-that-dark-fiber? dept

Earlier this year, there was an analyst report that got a lot of attention, claiming that YouTube’s bandwidth bills were huge, and there was no way the site was likely to ever become profitable. Google critics gleefully danced on Google’s grave, mocking the company for the purchase. However, the estimates by the analyst seemed off, and we began to wonder if the ancillary benefits of YouTube actually made the site a much better investment. In fact, Google later hinted at exactly that point. One of the major problems with the original estimates of YouTube’s bandwidth costs were that they simply extrapolated out the cost of bandwidth, and never took into account Google’s unique position — such as the fact that, during the “down” years a while back, Google scooped up a ton of dark fiber for pennies on the dollar.

Now, a new analyst report points out that, given how much traffic runs through Google, combined with all that dark fiber it owns, there’s a good chance that Google has set up peering relationships with other backbone providers, such that YouTube’s actual bandwidth bill may be closer to zero. I’m not sure I believe that either, but at the very least, it points out that there’s a lot more to consider here than simply extrapolating out the number of videos times the basic cost of bandwidth.

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Companies: google

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Comments on “New Estimate: YouTube's Bandwidth Bill Is Zero”

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Lawrence D'Oliveiro says:

Rest Of The World Pays

Last I heard, when service providers outside the US wanted to connect to providers in the US, the former had to pay the latter for the privilege. There was this automatic assumption that the net flow of content, and hence benefit, would be out from the US, therefore the net flow of money should be in the opposite direction.

So YouTube’s bandwidth may not be costing YouTube, but it’s certainly costing us.

jfgilbert (profile) says:

Don't confuse 'bill' and 'cost'

If I operate a fleet of tankers carrying millions of gallons of oil across oceans, one might expect that I have a huge fuel bill to power my tankers. But I can have a deal with oil producers that allows me to fuel my tankers without charge, in exchange for some additional service or discount that I give them. My fuel bill might be zero, my cost is not, it is the cost of the service I provide in exchange.
Google may not have to pay for the bandwidth it uses on some carriers because it lets them use some of their infrastructure in return. They paid and continue to pay for that infrastructure, so that’s not free to them.

Nicko says:

Re: Re: Don't confuse 'bill' and 'cost'

Actually tankers = physical interconnects and oil = content.

Google purchased a bunch of interconnects when the price was cheap, and instead of renting the ability to move content from a carrier, they do an equal exchange (you move my oil from point A to B with your tankers, and I will help you get your from point C to D with mine).

But yes there is still cost to both parties even though the net amount of money transferred is low.

And having seen the very distinctive large banks of juniper switches, and the amount of fiber interconnects in the meet-me rooms, always within a stones throw of a tier 1 provider interconnect point; it doesn’t surprise me that the carrier relationships didn’t flow both ways.

jfgilbert (profile) says:

Re: Re: Re: Don't confuse dimensions and units

Thank you, Nicko for understanding what I meant and expressing it better than I could.
Bad Analogy Guy: If you want to be literal, bandwidth is not a unit of measure, it is a dimension just like length or weight. The unit of measure for bandwidth would be bits/second. The term is, however, commonly used to talk about the capacity that is allocated to a user and thus consumed by this user. It is obviously used in this sense when the article talks about “bandwidth bill” because if it was not consumed, there would be no bill.

Mike says:

Re: Don't confuse 'bill' and 'cost'

Of course, if you actually read past the 5th paragraph of the story, you’d realize that this is exactly what the article says.

But the lack of a monthly bill in the mailbox doesn’t mean Google’s internet connection is free — it’s just that it has purchased unused fiber optic cable known as “dark fiber” — and uses it to carry its traffic to other networks where it “peers” or trades traffic with other ISPs. Its costs for bandwidth are then amortized across the life of its fiber and routers.

Does anyone actually READ anymore?

Stefano Quintarelli (user link) says:

this is always the question: make or buy ?
in either case there are capex and opex (investments and operating costs) envolved. if you buy, there’s also a margin for the supplier.

you “buy” when you think the supplier can achieve performances, economies of scale, economies of scope, economies of skills that outperforms those you can achieve if you make.

you “make” when you can save the margin that otherwise would go to the supplier.

remember that the telco industry is 100 times bigger than google (at least) so, on purchasing power, they can get similar deals (if not better).

what margin should a company have ? enough to convince you investor to purchase their shares or bonds, which means better than a gov. bond plus a remuneration for the increased risk. so it’s gov. bond remuneration plus a spread (otherwise you’d buy gov bonds).

this is the order of magnitude of the savings you can have (all other things being equal/similar) by making instead of buying.

of course, you can even decide to make if you need a greater level of control which cannot be ensured by the supplier. in this case, in order to reduce the risk, you can even face higher costs.

jimobrien (profile) says:

Why telcos would want to private peer with YouTube

It’s get the video stream via the Internet and pay exchange fees with other carriers, or private peer. It’s why Akamai, Level3 and others were welcomed into telco data centers – it reduces their out-of-network costs. It was a smart and suitable solution of YouTube to deploy fiber and focus on private peering to major telcos/cable. It saved everyone a lot of money and provided a way to scale, without crushing the Internet. Hats off to them.

John Sokol (profile) says:

I wrote about this in March of 2006

See my article:
Exploring YouTube

One thing they will all hit very quickly is the cost of bandwidth as explained in my paper Economics of Video and the Internet. April 2003.

Basically with things like Gnutilla and Bit Torrent the cost is pushed out to the clients ISP’s and spread around. But these video blogs are being served from some sort of CDN (Content Delivery Network, what I used to call Distributed Servers). They are either paying for bandwidth at some incredable expense to the company or have planned from day 1 to get so much traffic to be able to force all the major backbones to PEER with them and this would basically give them free Bandwidth. Peering is only an option for the very largest players where there is so much user Demand that is starts to cost a large ISP more money to not host your content or provide a free conntection to you then to not do that. This is the equavalent of a cable company charing small player to put of TV shows, but fot HBO the have to provide it or loose customers.

From a Dec 15, 05 press release: “YouTube already is serving more than 3 million videos, adding 8,000 video uploads and transferring 16 terabytes of data. ” From Feb 14, 06 “is now receiving more than 20,000 uploads per day.” and from About YouTube “With over 25 million videos served up daily ” and “YouTube is currently serving over 45 terabytes of video per day”

Anonymous Coward says:

Re: I wrote about this in March of 2006

This is nonsense, other countries (besides the U.S.) offer much faster bandwidth for much cheaper prices and they don’t seem to be having any problems. The problem is that in the U.S. the government limits competition and regulates who can and can’t build new infrastructure for the sole purpose of serving corporations.

Allen (profile) says:

Google haven’t paid anyone to move their YouTube traffic (or other traffic) from peering points to the consumer for a long time. But they do spend a lot of money expanding and maintaining their extensive global network that moves traffic between their data centres and from data centres to peering points.

Major Telcos speak only of the former when they talk about Google getting a “free ride”; Google speak only of the latter when responding that the Telcos must maintain net neutrality; Analysts and journalists happily emphasise whichever fits their agenda.

So YouTube wasnt a bad investment because the bandwidth costs didnt turn out to be crippling as some predicted? OK. A little one dimensional but I guess I can live with that.

Anonymous Coward says:

Re: Re:

Even if the ISP’s pay then the customers pay the ISP. I pay my ISP money to provide me bandwidth from Google (and others) and so they should do so. That’s part of the ISP agreement between the customers and the ISP, that the ISP will provide service from Google to the paying customers who pay the ISP for the service.

Ian L (profile) says:

Muddying The Waters

Google still pays for some of their connectivity to the outside world. It’s called transit. They don’t peer with 100% of the ASes in the world, and they’re not a Tier 1 network where all traffic is downstream.

Granted, Google peers with a crapload of providers, however Comcast (largest cable provider), Time Warner Cable (second largest cable provider) and Qwest aren’t part of the mix. Today my Qwest-powered ISP is going to Google via AT&T (transit on Google’s end) and YouTube videos are crappy. When the ISP was hooked up to AT&T things were great. Similarly, my 22 Mbps Comcast connection has difficulty pulling down a 2 Mbps YouTube HD stream…YT uses Level3 transit to get to Comcast. I know, I did the traceroutes. Comcast pays L3 for transit, as does Google…don’t know why (except for spite) Comcast isn’t peering with teh Goog but they aren’t.

Google probably peers with some of the bigger networks out there, or at least pays for transit to them. They peer with Internet2 and probably Cogent. They get transit from Level3, AT&T, Sprint and Global Crossing, probably in that order in terms of how traffic gets passed. So they aren’t using anyone’s tubes for free unless those tubes have been opened via a settlement-free interconnection agreement (free peering) and their bandwidth bill (let alone their backbone infrastructure bill) definitely isn’t zero.

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