Too Much User Generation, Not Enough Monetization

YouTube will lose just under a half a billion dollars in 2009 and the problem is the massive volumes of user-generated content which are difficult if not impossible to monetize. Going forward, YouTube may need to change business models where it either charges a subscription for usage or shows only high-quality content. A great article by Silicon Alley Insider (get your dictionary out first) goes over the situation in detail. What can we learn from this story? Even Google, one of the world’s richest companies may not be able to subsidize money-losing social-networking sites forever. Sure YouTube is the leading video site on the web but guess what… We have done a 180 from the dotcom days where eyeballs were enough. You see, even though we thought the dotcom bubble bursting was the end of eyeball-only business models, it seems social networking mania spurred by Facebook, LinkedIn, etc prevented investors from focusing exclusively on profit. If YouTube has its business model modified in some way to ensure the site comes closer to profitability, it could be the final sign to the market that companies need to focus primarily on profit and not eyeballs.

Having said that, there are potential business models Google is toying with and eventually one of them could strike gold. One that comes to mind is a toolbar integrated with network programming allowing the site to become the conduit to all TV viewing via a queuing system allowing users to add programming which will run in order. Some sort of video Pandora emulation comes to mind as well.

The revenue would be shared by network broadcasters who would flash video ads just like they do on TV.

An interesting thought here is how YouTube is responsible for massive volumes of video traffic which in aggregate is causing internet operators to upgrade their networks and complain incessantly about Google. The irony is Google generates massive traffic for a service which loses it money. And there are service providers who want to cut them off or slow their traffic or charge them to carry their traffic with priority. Would global carriers have a better relationship with Google if they drastically reduced their “bandwidth footprint?” I vote yes. It seems YouTube is much more of a problem for Google than just lost revenue.

Thanks to Richard Shockey for bringing this article to my attention.

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