The Ricardian case against YouTube

I love being reminded of the history of economic thought:

It seems safe to assume that YouTube’s traffic will continue to grow,
with no clear ceiling in sight. Since the majority of Google’s costs
for the service are pure variable costs of bandwidth and storage, and
since they’ve already reached the point at which no greater economies
of scale remain, the costs of the business will continue to grow on a
linear basis. Unfortunately, far more user-generated content than
professional content makes its way onto the site, which means that
while costs grow linearly, non-monetizable content is growing
geometrically as compared against the monetizable content that YouTube
really wants and needs to survive. This means less and less of
YouTube’s library will be revenue-contributing, while the costs of
delivering that library will continue to grow.

The article is interesting through and the hat tip goes to Andrew Sullivan.

Comments

Note that it's written by the CEO of a YouTube competitor.

Note also that it makes a lot of assumptions that the author probably does not have data to support (e.g. "no greater economies of scale remain"), or that seem flat-out wrong (e.g. that, necessarily, user-generated content == non-monetizable).

Just give bandwidth according to traffic - as simple as that. This reminds me of samuelsonian public goods theory - proving mostly that economists lack the imagination entrepreneurs have.

Per Martin, computing power doubles every 18~24 months (Moore's Law), and the reverse is that the cost of computing a given amount of operations halves every 18~24 months. The cost of storage and bandwidth falls even faster (yes, really). Which means that YouTube's costs are probably more or less flat. Meanwhile they keep adding premium content. Further, Google's ability to monetize that traffic will explode once they crack search problem (the proverbial PageRank of video).

YouTube gets more search queries/day than Yahoo or Microsoft's primary web search engines. It's not going anywhere.

Sounds more like the Malthusian case against YouTube.

I would have thought that Tyler was too smart to buy into this silly linear thinking.

YouTube could cut the costs mentioned by using peer-to-peer technology for storage. They could be like E-bay, simply a portal that shaves a few pennies off everything that passes through. As noted, hard-drive prices are plummeting as fast as ad revenues.

I still listen to the radio and watch TV over the airwaves. I go to movies. These have been around for what, a century? YouTube may be more of a competitor of Facebook than old media. I don't understand why professional content matters. Who would want to watch it on a 4 inch window?

It's a very nice analysis, but it focuses on costs, which probably aren't the problem. The problem is that anyone can create a video site. So, you come back to who has the edge in consumer inertia. Surely Google would never put their video site at the top of a search results unless it was the most popular, would they?

Google might be able to monetize YouTube by putting GoogleAds there.

By following that link I found both a highly photogenic dog skateboarding and a remarkably athletic dog which skateboarded down steps and in a concrete tube.... if there's a "Teach Your Dog to Skateboard" DVD, that would be the place to advertise it.

The linear vs geometrically cost growth argument is a Malthusian argument, not a Ricardian argument. Ricardo may have used it, but it was introduced by Malthus is his work on population growth.

How silly:

"Unfortunately, far more user-generated content than professional content makes its way onto the site, which means that while costs grow linearly, non-monetizable content is growing geometrically as compared against the monetizable content that YouTube really wants and needs to survive."

So if far more user-generated content than professional content--say the ratio is 100 to 1--makes it way onto the site, and content is growing linearly, user-generated content is therefore growing geometrically. Riiiiiiight.

okay, to clarify what I am grousing about..

The genius with two first names fails to multiply $9.48 by 75 billion correctly. When looking at CPM (or cost per impression or whatever some MBA nerd decides to call it)... Google only needs $0.01 (NOT $9.48) per impression.. to make a profit on those 75 billion streams.. since that would give them $750 million which is higher than the made up operating cost of $711 million.

And, again, Google's storage and bandwidth costs per Megabyte will be decreasing in the future.. not increasing. There will be a point where.. no matter how quickly users upload new content, Google's total cost of storage and distribution will decrease.

Again, this article isn't interesting unless you are amused by made up B.S. that matches your own opinions.

Yeah, all costs are fixed in the short run and variable in the long run. You just have to pick your timescale.

bleh.. I've now completed the circle.

Really, that's all you have to say after the following declarations?

-- The guys fucking math is wrong
-- mathematical-wunderkind
-- The genius with two first names fails
-- made up B.S.

So why did his "mistake" earn so much invective, but your own actual mistake merits merely a little "bleh"?

You screwed up. Tell readers here that you screwed up -- not just drop some vague line about completing circles.

Though I agree with the posters who argue that this reeks of a Malthusian crisis, if for some reason the cost of bandwith did reach some low point, an easy way to limit content would be to institute some sort of rating system where unwatched or minimally watched content perished after some period based on rating or clickthroughs. In fact I'd really support this happening right now. Call it a capitalistic model for content. If you don't add value you go away. This way youtube becomes less of an online video storage site for small groups of people and more a hub of what is useful or interesting to the greatest number. If you did this you'd obviously have to account for regional differences for local consumers otherwise all content will someday be in Chinese or Indian, but I think the basic principle works.

it always seemed to me that the price payed for youtube must have included some sort of strategy to keep microsoft and/or yahoo from buying them and becoming "cool". in other words- what was the cost of not buying them?

Comments for this post are closed