YouTube's Bandwidth Bill Estimated At $300M For 2009
Credit Suisse Analysts Issue Revised Analysis of Video Site's Costs
By Todd Spangler -- Multichannel News, 9/9/2009 7:05:12 AM
YouTube, the Internet's most popular video site, will spend approximately $300 million on bandwidth in 2009 -- meaning it won't be profitable for the year, according to a revised analysis by Credit Suisse.
In a previous report, in April, Credit Suisse analysts Spencer Wang and Kenneth Sena pegged YouTube's bandwidth costs at about $360 million for the year. However, that original estimate was criticized for not accounting for "peering," the voluntary interconnection among large Internet networks to more efficiently exchange traffic in which no money changes hands.
In an updated analysis issued Wednesday, Wang and Sena included the assumed benefits of peering agreements on YouTube's bandwidth costs but said the difference was not enough to change their original conclusions.
"Even with the benefit of peering, we estimate that YouTube's total bandwidth costs in 2009 will be close to $300 million, or within 17% of our original projection," they wrote.
According to Wang and Sena, that means YouTube still would not be profitable this year, given their original 2009 revenue estimate of $240 million (a top-line increase of about 20% year over year).
YouTube is far and away the Internet's biggest video outlet. In July, YouTube and other Google video sites registered a record 8.9 billion video views, accounting for 42% of all videos viewed online, according to research firm comScore.
The Credit Suisse analysts noted that "pinpointing YouTube's bandwidth expense with precision is quite difficult, given limited disclosure by the company on this topic."
At the same time, Wang and Sena emphasized that YouTube could potentially become a very attractive business down the line.
"As we wrote in our original analysis of YouTube, our work suggests that unit economics for video streams that are being monetized by YouTube carry attractive 35%+ margins, implying that YouTube's profitability should improve if the percent of videos monetized increases," they said.
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Hey Ian, great minds think alike ;)
I've also been wondering about this for a while, and looked up both Google and YouTube on Robtex as well.
You're right, surprisingly little Google/YouTube traffic goes over peering links. At least compared to CDNs like Akamai and Limelight. You'd think the biggest residential ISPs would peer with them.
Interestingly, it seems like YouTube is still run somewhat separately from the rest of Google, network wise at least. They still aren't fully integrated, and appear to have different peering/transit connections despite both being part of as-google.
Google should be more aggressive about peering in general, and particularly with tier 1s.
All that said, the $300 million figure doesn't make sense. Bandwidth doesn't cost that much, especially when you buy it by the freight train load.
Samsonian - 9/10/2009 8:02:19 AM EDT -
It's actually surprising how little of YouTube's traffic actually goes directly over peering links. I just checked their various ASNs on Robtex and a surprising amount of traffic goes over what apper to be transit links. That's gotta cost some money.
That said, I don't know where the $300M per year figure comes from. At an average price of $5 per Mbit, that would mean that YouTube would have to be paying for 5 Tbps of bandwidth at the 95th percentile. Possible, but I somehow think that's shooting a bit high.
Google on the other hand has extensive peering agreements, and much of YouTube's traffic goes through Google's backbone, which does have a good amount of peering. That said, notable omissions from the peering group are the nation's cable providers, mainly Comcast and Time Warner Cable. Of course, peering with effectively your competition may not be all that great...
Ian L - 9/9/2009 7:35:22 PM EDT
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