Hacker News Reader

Comment by marvin | Hacker News Reader

> OpenAI is really strong tech without much product market fit. It's got a ton of mindshare, but that's about it. Buying them is making a big bet that you can somehow turn that into a big business.

That's the YouTube argument. "Yeah, everyone uses it but it's not like they're able to make money", stated about a company that's iterating its products faster than viable competition can react. In this case regarding one of a few actors in the world that can plausibly access the computing resources required to build on the bleeding edge.

They've made something people want; they'll be successful.

View on HN

Yeah, that's the bet!

A counterexample might be Twitter. It's something that lots of people want (judging by its usage), but it's really struggled to turn that into a business.

Whether OpenAI is the next Youtube or the next Twitter remains to be seen.

Twitter has about $5B a year revenue. The fact they aren't profitable is mostly because of they were/are a badly run business.

(Note that they just about break even every year. That's a sign they can control costs, but the lack of revenue growth points to the fact that - as everyone who has used it will tell you - their ad platform is terrible).

Twitter never really got the level of usage as YT though. 300 million is what I remember for their userbase.

I suspect that any service that crosses some threshold of users will almost certainly monetize it profitably.

I can't really tell if you're saying they're like or unlike YouTube, but YouTube did get acquired

Most folks commenting on this are probably not old enough to remember the controversy. But the original majority opinion was that YouTube would go bankrupt and die, having no potential to be profitable even after an acquisition. This in spite of having ridiculous growth and popularity.

> That's the YouTube argument. "Yeah, everyone uses it but it's not like they're able to make money"

Seeing that most rumors are that YouTube still isn’t profitable, that may not be the argument you think it is.

It's very unclear why anyone thinks YouTube isn't highly profitable.

Google has only released revenue numbers: Roughly $15B in 2020[1]. Costs are difficult to judge, but in terms of infrastructure they are probably somewhat comparable to Netflix.

For 2020, Netflix had roughly $24B revenue and spent $1.8B on "technology and development" (which is where their infrastructure costs are)[2].

Unless you think Google is much less efficient than Netflix (which uses AWS for a lot of their tech[3]) then it's difficult to see how YouTube could not be profitable. Even if YouTube costs 3 times as much at Netflix to run (I don't see how) Google still has $10B revenue to pay creators for, and they control both how much they pay creators and how much they charge advertisers.

[1] https://www.theverge.com/2020/2/3/21121207/youtube-google-al...

[2] https://ir.netflix.net/financials/financial-statements/defau...

[3] https://s22.q4cdn.com/959853165/files/doc_financials/2021/q4...

They also pay creators and have much higher storage costs

Netflix pays for content too.

And until recently, Netflix has been borrowing billions - more than its net income to produce and acquire content.

Netflix pays once for content and it owns it. It’s a fixed cost. YouTube content creator costs scales with popularity

But Youtube controls how much they pay creators to a much greater extent than Netflix does.

Netflix commissions shows, and they have to have hits to drive subscriptions.

Youtube pays a percentage of the ads shown on each channel, which scales directly with the popularity. As the channel becomes more popular the creator gets paid more, but Google makes more money because the advertisers pay by views too.

Netflix doesn't have that property.

I have a better source now, estimating Google's gross profit margin for YouTube at 38%: https://mannhowie.com/youtube-valuation

Basically:

- 55% of Ad revenue goes to creators

- 7% of revenue on storage and data center costs (based on Google's 2019 annual report that reported how they depreciate their data center assets).

On top of that there are operating expenses, so operating profit margin is 3-18% (this is assuming their op-ex is much higher - almost twice - Netflix, but comparable to Facebook.)

Infrastructure costs must be much higher than Netflix.

YT has far higher storage costs, their content caches way worse and they have to pay for all the tech involved with Content ID, commenting, search over a much larger index, a slick upload/edit experience, ad handling, ad targeting, handling highly heterogenous content etc. This is an org that had to design their own ASICs to keep up with transcoding demand, it's just not in the same galaxy as Netflix in this regard.

That said, YouTube may still be profitable. I doubt even Google knows. When I worked there a long time ago execs were routinely asked about whether particular products were profitable and the answers made clear that they usually had no idea. Too much shared infrastructure that can't be clearly accounted to any one product, and many products justified with hard to measure things like making web search better.

Pretty sure YouTube has never turned a profit. It, as everything Google does, exists solely to generate personal data.

Reply on news.ycombinator.com