14 DAY TRIAL // The tides are turning for YouTube, at least if all of the new-found self confidence and bravado of Google is to be believed. The company said during its Q2 financial results conference that the video site would become profitable soon and that the future was looking a lot better. It then went on to list some of the common mistakes people make about YouTube's financial side. Most people were optimistic, yet still skeptical, but it now seems that the analysts are also starting to side with Google and are revising some of their bleak forecasts.
The well-known financial institution and research firm Citi says that it now believes that the widely spread and trusted report from Credit Suisse, which claimed that YouTube was on its way to losing $470 million this year, may have been wrong, with several mistakes in some critical areas that would greatly decrease the site’s estimated operating costs.
A later report from RampRate, a firm that provides bandwidth and other cost estimates and consultancy to Internet companies, stated that the costs of running YouTube may have been grossly overestimated, with their own findings putting YouTube's loss for 2009 at only $174 million. One of the main reasons for the discrepancies is the way the two research firms calculated the bandwidth costs, as Credit Suisse's report didn't take into account the savings that came from the traffic peering deals that Google had with most major ISPs. This not only allowed the search giant to get a significant cost reduction on bandwidth expenses for YouTube but also provided the company with a powerful leverage in peering agreements.
Mark Mahaney of Citi actually contacted RampRate and now agrees with their findings, citing several factors that could contribute to YouTube and other video sites becoming profitable soon. On the one side is the increased monetization of the website, with YouTube making a lot more money from ads, which are now placed on a lot more videos. Coupled with the reduction in bandwidth and storage costs, which have made it increasingly cheaper to run the site, it could mean that the video site may become a money maker sometime in the not so distant future.