Online advertisement revenue is not directly proportional to website traffic »

April 26, 2009

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There is a myth amongst bloggers and other website owners that the more traffic they generate, the more ad revenue they make. 5 years back, probably, it was believable. But if we look at some of the heavy weights, like Facebook, Twitter and YouTube, none of them are profitable yet. While Twitter and Facebook are on one side, YouTube is pretty interesting. It has lot more overhead when compared to the other two. We have a first hand experience maintaining a high volume video site (check out http://www.thescoutingedge.com). If the pain of encoding a 90 minute game into 150+ high res and low res clips is on one side, the infrastructure needed (download servers, application servers, backups etc) is really daunting. If Google did not buy YouTube, I wonder how the original owners could have ever supported this beast.
As per Credit Suisse Report, YouTube could lose upto $470 million in 2009. That is a lot of money, for any company in this economy. The point being that inspite of being an online leader in video, why is it not being profitable? There are tons and tons of people visiting the site every day, so logically, there should be lot of revenue through Ads alone. See the MSNBC video below discussing why advertisers shy away from sites like YouTube and why premium content is important for Ad revenue generation.