From Gangnam Style to videos by famous artists, viral shorts, and millions upon millions of views, there's no doubt YouTube is the giant of online video. Yet a new report from the Wall Street Journal indicates that despite contributing 6 percent of Google's sales last year, YouTube hasn't generated net profits and is barely breaking even.
The numbers are staggering: third on Alexa globally, one billion active users per month, six billion views in the same period, and $4 billion in revenue in 2014. That represents 6 percent of Google's overall sales, but it's only enough to keep the service's balance at zero. The truth is that in Mountain View they are still trying to find the formula to make YouTube profitable, eight years after its acquisition. How can one of the web's titans remain in the red after nearly a decade online?
The Cost of Running YouTube
One of YouTube's biggest challenges is maintaining its servers. Users upload an average of 100 hours of content per minute, and sustaining the infrastructure needed to handle such load is far more than a technical commitment. The Wall Street Journal article—regrettably behind a paywall—also highlights that most users watch YouTube videos away from the site itself, when the ideal would be for them to visit the homepage and explore channels there. A YouTube spokesperson denied these claims, stating that the majority of traffic comes from YouTube.com or its mobile apps.
Competition and Monetization
YouTube has also been forced to strengthen its position by signing exclusive deals with some of its biggest stars, because direct competitors like Facebook, Crackle of Sony, and the upcoming Vessel (developed by former Hulu executives) are actively seeking ways to lure them to other platforms. Add to that the users who don't want to monetize their content or are simply unable to do so, and the widespread use of ad blockers—(an estimated 50 percent of YouTube users block ads). YouTube is exploring several possibilities, from subscriptions like Music Key to premium offers for advertisers. It may seem hard to believe, but there's still much room for improvement.
