YouTube Will Lose 60% Less In 2009 Than The Bank Analysts Say

Earlier this year, Credit Suisse said Google (GOOG) will lose $470 million running YouTube in 2009. In a new report, the IT consultants at RampRate put that number closer to $180 million.

The main difference between the estimates is bandwidth and hosting costs. Credit Suisse pegged that number at $771 million. RampRate says it’s closer to $414 million.

RampRate says Credit Suisse failed to account for four factors: peering traffic, wholesale bandwidth deals, and cheap data centre locations.

NewTeeVee paraphrased the analysis:

Google uses peering for an estimated 73 per cent of its bandwidth; Credit Suisse did not account for this at all. Peering is where ISPs trade traffic to reduce the cost of transit, and essentially means Google does not pay for that bandwidth. Google’s peering partners are known or thought to include Level3 and AT&T.

estimating YouTube's operating costs

By negotiating for additional paid bandwidth, Google can probably bring down costs to 50 cents per Mbps.

From the report: “YouTube content is by definition ‘long tail,’ which means the storage it requires can be of a consumer-grade commodity quality. Google’s core competency is in managing commodity server/storage farms. At current rates, its servers likely cost no more than $500 apiece, and can add a sub-$100 1TB hard drive to produce a net cost of $.60/GB. Even with an aggressive 1-year refresh cycle, that is just 30% of the $2.35/GB projected by Credit Suisse.”

Google also lowers its serving and storage costs by using out-of-the-way locations for its server farms such as Iowa and Finland.

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