Money Pit

Given the cost of servers, storage, and bandwidth for streaming so much video over the Web, it's certainly true that it costs them a bundle--far more than they ever expected.

It's likely that YouTube has become as popular with video watchers as Google expected, but they miscalculated its appeal to the advertisers whose money offsets the costs. Advertisers have not yet flocked to be shown side-by-side with amateur content, while services that show Hollywood videos, such as Hulu, have flourished in comparison.

Google continues to tweak its offering, but admits that the right formula has not appeared yet. The question is whether Google can afford to lose this much money, with it ever increasing as long as that formula remains elusive.

It probably can afford it for the foreseeable future. The question is whether it will decide to, which might depend more on attitude than data.

YouTube was expected to be a huge advertising success. I mean, how could it miss? Videos are the most popular form of media and YouTube's model created the content for free, so how could advertisers resist all those eyeballs? But somehow, they have, making YouTube an immense disappointment for Google.

On the other hand, listing off the other free content plays, such as Gmail, Google Docs, and the forthcoming Google Wave, which one of those is profitable? I'd bet that none of them are. And, they were never expected to be, at least not by now.

If Google can pay the freight, and if Google can change its attitude about YouTube, so that it's a long-term play, just like those other user-brings-the-content initiatives, Google can emerge as a leader in video and will eventually figure out the advertising plays for all of them (or figure another way to make money). If Google succumbs to a disappointment in YouTube not shown in Gmail, for example, it might miss out on a big market down the road.

So, if you use YouTube for your marketing, I wouldn't be terribly concerned about what you hear. Yes, I'd be posting my videos on Vimeo and other sites, too, just as a backup, but I wouldn't be worried that YouTube will disappear any time soon. If anyone has the deep pockets to suffer through YouTube's expensive adolescence, its Google.

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