Rip Off Content. DO Pass Go. DO Collect $1.65 Billion
Published by MaxBro on Tagged RandomI’ve been meaning to write an article on the puzzling success of YouTube and it’s implications for the Web 2.0 entrepreneurial crowd. Despite it’s amazingly flawed business model it still made its founders millionaires many times over, appeared as a platform of communication in a presidential debate, and pretty much gets talked about everyday as though its the 21st century reinvention of the wheel. Jacob Lodwick, the guy who founded Vimeo (an alternative user-generated video site that predates YouTube) has a lot to say on the matter that I agree with for the most part.
From JacobLodwick:
YouTube is an illicit organization built upon a self-destructive philosophy. This is not an academic point: all businesses depend on their philosophy. Whether that philosophy is determined though conscious design, or whether it accumulates randomly over the months, is the choice of the businesses’ leaders.
I would add one thing: YouTube’s founders may have had good intentions but used evil methods to implement their business, but it wasn’t really their bad philosophy that would have eventually crushed them. It was the bandwidth and other tech costs. This is from an old article on YouTube from 2006 that I wanted to use because it helps show how YouTube worked before Google bought it at the end of that year.
From The Bivings Group:
- YouTube is reliant on funds from venture capitalists for financial support. Investments in the confirmed amount of $11.5 million from Sequoia Capital make up the base of these funds. But a rumor from TechCrunch says that this may have increased to $25 million.
- YouTube does make some money from advertising, but if you look at the site, you will see that it is remarkably sparse in the advertising department. In addition, these ads are a relatively new feature that only started appearing in March.
- The biggest problem facing YouTube is that, according to Business Week and other sources, the site has to shell out between $900,000 and $1.5 million per month for costs associated with computer servers and the massive bandwidth required to display all those videos.
- As a result of these costs, the Economist reports that YouTube is losing around $500,000 per month.
Put another way, back in 2006 YouTube was like this huge high school science experiment. Like a cardboard and baking soda volcano. Well, a multi-million dollar volcano to be exact. Only instead of winning an award actually worth something, it just got that big blue ribbon of massive internet traffic. With no real ROI.
The only way reason YouTube continues to exist is because Google (worth well over $25 billion) bought it and can afford to pick up the tab of its huge operating costs. Basically, Google subsidizes our ability to watch videos for free online. Uhh…thanks Google.
YouTube may be evil. It may ultimately crash like the Hindenburg. But in the end, it proves that sometimes the best ideas aren’t the ones that make money the traditional way. Sometimes the right amount of hype combined with deep investor pockets is enough to turn a mole hill into a mountain.
For more information, check out Mark Cuban’s take on YouTube.
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