Wednesday, December 17, 2014

Face The Video

Most users will add video to Facebook by linking it from YouTube. This must be galling for the social network since they are not only hosting a rival technology, they are also promoting advertising for a rival platform.

So, it's not surprising that Facebook have been keen to break this situation and encourage users to upload directly to their network, where they can monetise the content. 

Twitter and Tumblr have a similar predicament and Pinterest doesn't currently support video.

This matters since the rates for video advertising are significantly higher than those for ordinary banner type ads.

But video brings with it problems on a different scale to anything else. YouTube, for example, will enable users to upload files of up to 128GB (theoretically) and making money back on the upload, encoding and storage costs of files this size is very difficult. Of course, YouTube count on the majority of their content being short form, and then the sums may stack up. 

Google do not break out figures for their YouTube division and it's clear that the service is attracting serious advertising dollars. However, the costs associated with delivering the service must be astronomical. The server capacity to encode the video is itself breathtaking. A hundred hours of video are uploaded a minute. Taking that they are using computers that are capable of encoding in an approximate 1:1 ratio, each of which would need a very high specification, that's 6,000 servers, with redundancy and improved latency, I suspect they're using the equivalent to 20,000 servers.

Even more expensive is the bandwidth, since that's not a sunk cost (Google has to pay for outgoing bandwidth). Forbes reckons that a single video (OK, it was Gangam Style) had estimated cost for running the servers of $296,360 and estimated revenue from the ads of $348,285. This is a pretty thin margin for their most popular video and this has to subsidise the cost of encoding and storing those millions of videos that have few or no viewers.

So, Google is vulnerable if Facebook limits the length of videos on its network, gets more users to upload directly and sells out its video ad inventory.