Google is set to lose $470 million on YouTube in 2009, according to estimates by Credit Suisse. Even for Google, whose market cap hovers around $115 billion at its current share price, that's a hell of a write-off for one product.
Some pundits have predicted the dissolution of the video site--something would be anathema to the Web 2.0 mantra: get users now, make money later. How can Google justify keeping YouTube around? How can it take a property that loses half a billion dollars a year and make it sustainable?
Herein lies the problem, according to the Silicon Valley Insider:
The economics are hard to overcome. Assuming YouTube delivers the 75 billion streams that Credit Suisse projects for 2009, and assuming YouTube manages to slot an ad for every stream (which is practically speaking, impossible, given the nature of much of their content), YouTube would have to achieve a $9.48 CPM for every video impression shown... CPMs for user-generated content, assuming you can attract the advertisers, tend to be measured in fractions of a dollar.
The tension lies in the scarcity of storage. While YouTube's mass of content has the ability to grow indefinitely, its storage options can't scale any more cheaply, and the amount of monetizable content pales in comparison to the content they can't make money on.
In other words, YouTube has a reverse-Amazon problem. While Amazon makes their bread selling a few of a litany of items--the Long Tail model--YouTube is getting killed by those rarely-watched, ad-averse videos. YouTube's Long Tail is its anchor.
So what's the solution to keeping YouTube alive, free and unlimited? Like the problem itself, it might lie in YouTube's preponderance of users.
Top Online Brands ranked by Video Streams for March 2009 (U.S.)
Video Brand Total Streams (000) Unique Viewers (000)
YouTube 5,479,609 89,407
hulu 348,520 8,865
Yahoo! 231,795 24,761
Fox Interactive Media 207,528 14,719
Nickelodeon Kids and Family Network 196,160 6,391
ABC.COM 176,931 6,881
MSN/Windows Live 168,907 12,076
Turner Sports and Ent. Digital Network 137,621 5,822
MTV Networks Music 123,888 6,337
CNN Digital Network 103,453 9,021
Source: Nielsen Online, VideoCensus (Note: Includes progressive downloads and excludes video advertising)
Last fall, I wrote a piece about human-powered content filtering: a solution that could provide Google a way to keep YouTube alive as it exists today, while concomitantly stemming its terrible losses. I'm not saying that YouTube should implement a Digg-style social voting system--those setups are relatively easy to game, and they don't provide the true democratization that YouTube made synonymous with Web multimedia.
A better idea of YouTube's panacea could be gleaned from looking at sites like ThisNext, Mixx, and Wikipedia. All three sites share a singular mechanism, but have individual advantages that YouTube could stand to use as case studies.
At their most elemental, all three sites use a body of users to generate and filter content in a realm where all users are not created equal. On Wikipedia, frequent conributors have more editorial power than weekend warriors; on ThisNext, users that make popular product and style suggestions ("Mavens") accrue more centrality; on Mixx, star "Mixxers" become more prominent in their topical communities, and have more influence on the news presented in each category. The sites are self-policing and self-edited, and the passion of their users engenders a relatively high quality of content.
The incredible success of these sites would suggest that filtering is intrinsic to human nature. Indeed, our brains are well-designed for it: our eyes and ears absorb thousands of stimuli every day, and we must be able to choose fluidly what to attend to. We're already content sieves. And when people are allowed to compete and contribute using their sieve-like brainpower--even for nothing more than notoriety within a community--they do it with passion and alacrity.
YouTube already requires users to register and already has a user-flagging system to monitor content. Like all user content-driven sites, contributors are likely outnumbered by lurkers; 20% of the users are uploading 80% of the content. That 20% is YouTube's pool of pre-registered Mavens, ready and waiting. If the site allowed certain YouTubers to gain distinction based on the level of their input--uploads, SEO/keyword tags, comments, flags--YouTube would develop its own economy of social capital, just as other sites have.
That social capital, the very thing that Mavens, Mixxers and Wikipedia editors crave, could allow YouTube to better identify content they can monetize, improve their CPM, and allow them to gently slough off the rarely-used, the nonsense, and the lawsuit-fodder. If YouTube could manage to keep content growth steady by social deletion while improving the value of their advertising, they could begin to close that half-billion dollar gap. The environment for such a strategy will be idea, with Internet advertising predicted to significantly outperform the rest of the economy in 2009.
In some ways, YouTube would be better positioned for social filtering than any of the sites I use as examples above. According to ThisNext's CEO, Gordon Gould, Mavens are incentivized by the real-world fashion cred they can gain on ThisNext; several prominent Mavens have leveraged their fashion followings in their real-world careers. Success on YouTube could lend credibilty in the fields of video production, comedy, drama and television--industries that together dwarf fashion.
Like Wikipedia, YouTube has the name recognition and the primacy to spur real enthusiasm. Succeed on Wikipedia or YouTube as a frequent contributor, and you've achieved something in the big leagues. And as with Mixx, which is news-based, your success equates to real-world currency, since YouTube is cited regularly by the media and seen as a flash-point for current events.
YouTube's future might be clearer by this afternoon, when Google reports its Q2 results. Whatever the search giant decides to do with YouTube, let's hope it remains the open repository we've come to rely on. But it's worth remembering that in order to remain such, YouTube doesn't need to be a public gutter.