In business popular and profitable are two very different things. The most recent example out this week is Google subsidizing YouTube to the tune of $1.65M per day.
That means each and every time you viewed and forwarded that silly video of the water skiing squirrel you cost Google over $1.
So why do they keep pouring money into an unprofitable service? Perhaps the 375 million unique users who will visit the site this year is the central reason. While ad sales on the site aren’t currently covering the cost of hardware, storage, software, electricity, etc the power of being one of the most popular sites on the web does wield incredible potential.
I found this link from 2006 before Google bought YouTube forecasting the potential of the site to generate ad revenue. Obviously we know this speculation hasn’t paid out. Is that a result of the down economy or the failure of Google to capitalize on the ad revenue that could exist?
Earlier this month the rumors that Google was in talks to acquire Twitter. Those rumors have since been debunked but there is little doubt that the buzz around the potential of Twitter in 2009 is similar to the buzz that was around YouTube in 2006 at the time of its acquisition. To harness the power of that potential from viral to profitable has alluded many an emerging technology.
Google does have some success as a comeback kid in the online service space. Check out this analysis of how Google Maps is on the climb to surpass MapQuest as the leading online mapping service. MapQuest launched in 1996 and Google Maps not until 2005 so taking on a 9 year incumbent and pulling within striking distance in less than four years shows the power of Google accomplish tremendous business results when they focus on delivering a product of value.
I am interested to hear your comments on the profit model for viral services. How much are you willing to pay either with your pocketbook or with your time (viewing ads, etc) in order to use services like YouTube?