The video-sharing Web site is a runaway success — everywhere but on the bottom line.
YouTube Inc. is the Internet company to beat these days. Wowed by its meteoric rise — the 19-month-old site dishes up 100 million daily videos — startups and giants alike are crowding into the video-sharing market. Microsoft Corp. (MSFT ) is developing its own service. And this fall, the founders of the Skype (EBAY ) and Kazaa services will unleash the Venice Project, a wannabe YouTube killer built on file-sharing technology.
With all the excitement, it’s easy to forget that the video-sharing pioneer’s business so far amounts to a whole lot of expenses, not much revenue, and no profits. YouTube took on the job of creating the business model for a new medium where anyone can post any video. While it’s starting to develop new ad offerings, its popularity is driving up costs that established Web giants, such as Google Inc. (GOOG ) and Yahoo! Inc. (YHOO ), are able to spread out. YouTube spends a tidy, and growing, sum to stream its short clips. Current estimates range from $900,000 to $1.5 million per month. Much of that goes for computer servers and transmission bandwidth. But because the company is charting a delicate course in how it handles pirated videos, its legal costs could balloon if lawsuits start piling up.
Even more important, though, is the tricky question of how YouTube can make money off its phenomenal growth while maintaining the promise behind that popularity. YouTube could easily alienate its users by overwhelming them with ads. And the startup has to figure out how to attract a broader group of marketers by filtering more for copyrighted or offensive videos and by creating more channels of similar content.
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