Can YouTube Make Money?

Some people ask, “Can YouTube Make Money?” How can it make money giving away everything for free? It has to sustain such high bandwidth costs. It’ll die soon. But maybe not, only in Silicon Valley…

Now, more likely than 1999, eyeballs as a metric is back. The difference is, how expensive was it to obtain the eyeballs?

Some people quote a bandwidth bill of US$1m a month. They say YouTube will struggle.

But, is it really that expensive? That’s my question back to you.

I feel that the $1m is relative.

Let’s put it this way. I see YouTube as a Global TV Channel. So, in order to compare if a $1m/mo is expensive, I’d compare it with websites of the top newsites in the world:

Click here to see the Alexaholic fightout between Youtube, CNN, MSNBC, FoxNews and USAToday.

Within hardly a year of its existence, YouTube has burst out of nowhere to beat CNN.com so much so that it’s daily pageviews according to Alexa is nearly 2x of CNN.com. That’s a classic J-Curve, the all powerful exponential at work here.

If you were to bring up the annual reports and examine the cost-structures of any of these mainstream media organizations, I’m sure the cost of maintaining, producing and marketing their websites would have cost much more than $1m a month.

That’s where I’m coming from in my analysis. Yes, you may say that I’m comparing apples to oranges but this is what I think is the closest comparison off the top of my head.

For me, YouTube is re-writing the rules in the entertainment delivery eco-system. It is a cost-effective startup with a global reach that was built in the shortest amount of time, without the attendent costs involved in building out distribution the way mainstream media has to.

In other words, unlike cable-tv companies which had to incur huge infrastructure investments to build out their networks, YouTube saved a ton of money on such startup expenses and went straight to delivering great content. YouTube leveraged the global IP network already in place, the great excess bandwidth after the telecom crash-out of 2001, cheap harddisks, cheap processors and cheap operating systems to catapult itself into a position with greater global influence that any other company has every built before.

So, given this, which would you rather invest in? Youtube or the next cable-tv company?

I remember how Tim Draper from DFJ once remarked, “If some items on your P&L or Balance Sheet can be zero, please come talk to me.”