Great googleymoogley

September 8, 2006 12:57 PM

Do free online services really make lots of money?

Do sites like facebook, youtube, google, and myspace make their creators lots of money through their operations? I'm not referring to the sale of these businesses, but instead their operations. Can anyone give me documented proof that these people are making good money running these sites? Also I'll take any references to website owners who are making good money by providing a free service to users.

I'm trying to prove a friend wrong, and i want as much ammunition as i can get.

posted by ZackTM to computers & internet (11 comments total)

Hughes said Thefacebook turns a profit, mostly from advertising. He refused to disclose the private company's earnings.

Besides corporate advertisers, Thefacebook users purchase "announcements" -- ads that can be seen only by students from the same school. They range from campaign posters for student government positions to fliers about upcoming parties. They cost $9 to $15 apiece; the smaller the school, the cheaper the announcement.

Investments have boosted Thefacebook, too. Silicon Valley venture capital firm Accel Partners put in $13 million; PayPal founder Peter Thiel recently invested $500,000.

Via Wired

I think investments are really where they make the dough.

According to this, they just turned down $750 million, holding out for 2 billion.
posted by dead_ at 1:09 PM on September 8, 2006

I'm sure someone else will give you the stats, but the answer is "yes", with the exception of YouTube, which is a "no" with a capital "NO".

Someone will buy them, I'm sure.
posted by Mwongozi at 1:09 PM on September 8, 2006

For any public company, you can just look up their financial statements. For example, Google made $6 billion in revenue last year ($3.5 billion in profit), almost all from their advertising programs.
posted by mbrubeck at 1:11 PM on September 8, 2006

There's no rule here. There have been a lot of online services which have burned through their venture capital and then vanished without a trace. There have been some which have done extremely well indeed.

Since a lot of them are privately held (e.g. YouTube) those don't have to disclose their financials, so any opinions about profitability by outsiders are simply guesses. (Even so, I think it's a pretty safe bet that right now YouTube is not profitable.)
posted by Steven C. Den Beste at 1:15 PM on September 8, 2006

Google makes an enormous amount of money, and YouTube loses a decent amount of money. MySpace and YouTube make millions of dollars each, but probably not as much as people think. MySpace was projected t omake as little ast $40 million this year, which is astoundingly low for a site that gets roughly as much traffic as Google.

"I think investments are really where they make the dough."

Getting money from investors or being acquired is not revenue. I can't emphasize this enough. In both cases, the money received is an investment based on the premise that the company will be making much more in revenues in the future.
posted by anildash at 1:20 PM on September 8, 2006

MySpace may get as much traffic as Google, but they are still going to have much less cost on the backend.
posted by sonofsamiam at 1:31 PM on September 8, 2006

Just to clarify dead_'s above statements about making money via investment (I'm presuming you're referring to venture capital investing in the company here)... You can't really 'make' money from investors. That's actually money you, in a way, owe. Or the investors are investing in the company in exchange for part ownership, a stake in how the company does. That money doesn't go into the bank -- it's used for day-to-day operations, and it's actually there for when start-ups aren't making a profit.
posted by incessant at 2:09 PM on September 8, 2006

On somewhat of a tangent, does anybody happen to have a link to information on the YouTube infrastructure, i.e. data centers, servers, connections, storage etc.? I've googled, but I've mostly come up with estimations, e.g. this piece, which puts YouTube's traffic at 25 petabytes/month, which sounds absurdly high.
posted by Herr Fahrstuhl at 3:08 PM on September 8, 2006

Google recently guaranteed MySpace $900 million through 2010 in a search and advertising deal. So, I'd say MySpace is most certainly making money.

YouTube is a different animal, because of the absurdy high bandwidth costs of the absurdly high amount of video content they serve. I doubt that the estimates in Herr Farhstuhl's link are quite right (8.5 megs per download?), but I bet they are in the right neighborhood.
posted by lackutrol at 3:52 PM on September 8, 2006

Herr Fahrstuhl, as stated above Youtube is a private company and thus they are under no obligation to report their financials, especially since it's clear that they are burning through money at an alarming rate -- a fact that is not very attractive to potential buyers.

The best piece I've seen is the oft-mentioned forbes article which is just another estimate but puts the figure at 200 TB per day and approximately $1 million US per month in bandwidth costs. If you look at the URL that your FLV file actually comes from, it's from Limelight Networks, which handles running distributes, load-balanced nodes. I would imagine (as does the Forbes author) that the majority of that $1 million just goes directly to Limelight, and Youtube doesn't actually run that large of a network. But that's just more speculation.
posted by Rhomboid at 4:39 PM on September 8, 2006

$132,994.97 check.
posted by mmdei at 5:33 PM on September 8, 2006