Did anyone ever wonder how Youtube makes money?
We all watch the videos available on their site, embed them in our posts, send the links to our friends. Allthough they do not have to pay for the content in videos that are uploaded by us, Youtube has to pay for bandwidth.
How does this work? Anyone can buy space in a datacentre for storage and servers. The next thing you need is the connection to the Internet so users like us can reach the storage through a hyperlink and request the file to be sent or streamed to us. The network owners charge money for this bandwidth to Youtube. The more videos that are watched, the higher the bill sent to Youtube.
Our subscription fee for Internet access (DSL, Cable, Fiber, wireless) does NOT cover these costs.
Youtube uses all tricks known to man to reduce these costs, but our favorite industry experts at Telco 2.0 estimate Youtube’s bandwidth bill at a staggering USD 1 milllion per day (!). The income generated by ads does not cover this bill at all, yet. (The bandwidth costs are by far the dominant costs in their business model).
Must be an interesting challenge to get to breakeven.
Imagine if Youtube would start streaming HD video instead of small highly compressed video’s: their bandwidth costs would increase 10-20 fold to USD 10-20 mio per day.
The indepth analysis of Telco 2.0 provides you with the details, showing the big gap between the concepts of TV-over-Internet and the business model behind it.
We need a big change in the business model to get to a sustainable business.
