Welcome to the end of free

YouTube needs to make some moneyTo be profitable, OR not to be – that is the question.

The latest YouTube expenses news shouldn’t really come as a surprise. The price of enormous popularity is often high, and if the business model isn’t clear, then profits might not be in tandem.

YouTube expense estimations have emerged from Credit Suisse, and they aren’t pretty. YouTube is looking like making $120M – $500M in revenue this year. But the expenses are likely to be north of that in the $700M+ realm. That’s a significant loss.

Note however, that I wouldn’t be placing too much stock in the Credit Suisse numbers, I suspect they are calculated on face-value user numbers, and don’t take into account the different technologies YouTube uses for distribution…

In any case the principle remains: Popularity != Profitability (necessarily)

Facebook has had similar growth problems, with huge infrastructure costs ensuring that it is unlikely to turn a profit any time soon.

But for how long?

Although a distant memory for many, the 2000 dot com crash may repeat itself in some respects. Once that crash was over, the main thing I remember was that all the free stuff disappeared. Only those businesses with a solid monetization model survived. You can expect the same thing for Facebook, YouTube and Twitter in the coming 12-18 months. There’s only so long investor capital can extend (granted Google probably has deeper pockets than most), and soon enough the free stuff will go.

Part of the problem is in trying to ensure you’re the ‘last man standing’. Thus, YouTube will maintain free (probably via yet another ad-on-video overlay strategy) for as long as possible until competitors such as Vimeo, Hulu, Viddler and others are all but gone, and then put the screws on. Facebook will also be trying weird and wacky things in an effort to stem the losses.

In other networks, you can expect photo-sharing sites (Flickr, etc), music sites, career networking sites, etc to be similarly inclined  with the free accounts becoming progressively reduced in functionality, and the premium services featured more prevalently.

But this is a good thing

There’s a number of good things that will come of this.

  • For starters, the number of social networks will be reduced as consolidation takes effect. Currently there are simply far to many social networks. We need some order amongst the chaos.
  • Next, we’ll see the rise of non-ad related functionality, and perhaps more importantly, a change in user behaviour to actually value paid memberships.
  • Finally though, it will mark the end of the fly-by-night marketing types who have started polluting the social media stage due to its low cost of entry.

Bring it on.

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