Predictions

by Mike Masnick


Filed Under:
bigger picture, free, profits, youtube

Companies:
google, youtube



The Secret 'Profits' Of YouTube

from the don't-worry,-be-happy dept

It's become quite common for folks who dislike "web 2.0" or the concept of "free" business models to mock YouTube as an absolute disaster. For example, music industry lawyer (and hater of all things "free") Chris Castle has already declared the site dead (which is news to, well, just about everyone). Over in the UK, the Independent is running an odd little article that goes back and forth on whether or not YouTube is a real business proposition and then tries to extrapolate from there whether or not "free" works as a business model. The whole discussion is a bit off -- since YouTube really doesn't represent a good example of a business model that uses free, since the bandwidth costs of hosting video is so high. To use that as a proxy for the concept of free would be a mistake, since most other business models don't have that same issue.

That said, really the only truly worthwhile parts of the article are the ones where analyst Keith McMahon speaks up. He seems to be one of the few folks out there who actually has bothered to look at YouTube within the larger context of Google itself, and makes a few important points about (a) why YouTube helps Google in many other ways and (b) Google benefits from the widespread belief that YouTube is losing tons of money:
"There are many urban myths surrounding the way that companies extract value from the internet," he says. "Google's spin-off benefits from owning YouTube include the accumulation of our data and strengthening of their network design -- and the more time people spend watching online video, the more advertisers will pour into marketing on the internet as a whole. There's no doubt that Google can afford YouTube."

McMahon also believes that by keeping quiet about YouTube's hidden benefits and by allowing the misconception of it as a deeply unprofitable business to circulate, things work very nicely in Google's favour when it comes to negotiating with copyright holders in the world of TV, movies and music. Copyright holders can't demand money that isn't there, and it would certainly take no more than a hint of profitability at YouTube for lawyers to descend, threatening court cases and demanding higher royalties. In the new, topsy-turvy world of online economics, it seems astonishing that losses on paper have actually made YouTube a more powerful online force.
This leaves out another point as well: the more that people believe YouTube is unprofitable, the less likely they are to build serious competitors. I have no idea whether or not YouTube is actually profitable directly yet (I'd doubt it), but I think those who are insisting that the acquisition by Google was a bad idea, or that YouTube is somehow on its deathbed, haven't taken much time to understand some basic trendlines or the larger picture of how Google views YouTube, and the opportunities it has to make money via YouTube down the road.

Reader Comments

Subscribe: RSS

View by: Time | Thread


  1. identicon
    Ryan, 8 Jul 2009 @ 8:09am

    To add to this article, i would also like to include that a system (including the Internet) gain more value as more users use the system. The value of internet is high now because of the number of users. This is the case as well with youtube, it has more value when more users use it, so of course more adverts will be produced which will increase the organization's revenue.

    "There are many urban myths surrounding the way that companies extract value from the internet," he says. "Google's spin-off benefits from owning YouTube include the accumulation of our data and strengthening of their network design -- and the more time people spend watching online video, the more advertisers will pour into marketing on the internet as a whole. There's no doubt that Google can afford YouTube."

    I wonder if this benefit can be quantified, though. It sounds kind of like saying that Wal-Mart would benefit from poking holes in condoms because then more pregnancies would occur, thereby increasing the population and market. Is the difference that great?

Add Your Comment

Have a Techdirt Account? Sign in now. Want one? Register here
Get Techdirt’s Daily Email
Use markdown for basic formatting. HTML is no longer supported.
  Save me a cookie
Follow Techdirt
Techdirt Gear
Shop Now: I Invented Email
Advertisement
Report this ad  |  Hide Techdirt ads
Essential Reading
Techdirt Deals
Report this ad  |  Hide Techdirt ads
Techdirt Insider Chat
Advertisement
Report this ad  |  Hide Techdirt ads
Recent Stories
Advertisement
Report this ad  |  Hide Techdirt ads

Close

Email This

This feature is only available to registered users. Register or sign in to use it.