Estimate the cost of running YouTube.

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Estimate the cost of running YouTube.

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yogesh247 · Answer 1 · 2019-12-11T17:03:31+0000

Here is how I would approach this solution:

1. Asking clarifying questions: Do we need to calculate costs per month or per annum? What type of cost are we talking about here? Are we taking only a specific region or the whole world?

Now, assuming that we are considering the whole world and all the costs including infrastructure, marketing, and salaries of the employees, we can approach in the following manner to find the cost of running YouTube per annum:

2. Make an equation: The equation can be written as:

Cost of running YouTube per user = Infrastructure costs per user + Marketing costs per user + Salaries cost per user

3. Jot down points that you know:

Google's revenue is around $40 billion

4. Review and state your assumptions: I am taking the following assumptions:

Google uses 10% of its revenue on marketing
Out of the total marketing expenditures, marketing for YouTube accounts for 2%
60% of the people around the world have access to the internet
Out of these, 80% use YouTube
Amongst these users, 90% use it to only view videos while the rest 10% use it to create videos
There may be some people who are both viewers and creators but the number will be insignificant. Hence, we can ignore them
On average, a viewer views 5 videos per day. Each video is around 100 MB.
Bandwidth charges are $0.1 per GB.
Each creator creates around 5 videos per month or 60 videos per year.
The storage charges required for these videos amount to $0.02 per GB.
YouTube employs 100 developers on a pay scale of $150,000 per annum.
1 GB is approximately equal to 1000 MB

5. Do the math:

Number of YouTube users: 0.6*0.8*1,300,000,000 = 3.3 bn

Infrastructure costs: ((0.9*3.3bn*5*365*100)/1000) * 0.1 + ((0.1*3.3bn*60*100)/1000) * 0.02 = $55bn

Marketing costs: 0.1 * $40bn * 0.02 = $0.04bn

Salaries costs: 100 * $150,000 = $15,000,000 or $0.015bn

Total costs are approximately equal to infrastructure costs, i.e. $55bn

Total costs per user = $55bn/3.3bn = $16

Maha Alam · Answer 2 · 2019-11-18T05:48:14+0000

Clarifying questions:

1) Is this specific to any location? [Answer] no, everyone

2) Do we want to include all costs such as operation and marketing? [Answer] yes, all costs

The main types of costs with running YouTube are infrastructure costs (including servers, storage, data transfer), development costs to maintain features/updated and marketing costs.

The high level formula I'll be working towards is SUM (Infrastructue costs, development costs and marketing costs). I'd also like to break down the cost/user.

The formula there would be: Cost per user = Sum ($ infrastructure cost/ # of YouTube users, $ development cost / # of YouTube users, $ marketing cost / # of YouTube users)

First, I'll tackle figuring out the number of YouTube users. I'll take a top down approach. I know there's about 7 million people in the world. Out of the 7 billion, YouTube has a largest market share of users when it comes to video streaming/watching. So I'm going to estimate about 20% of the worlds population uses YouTube. 7 billion X 20% = 1.4 billion users. For the sake of having nice numbers, I will round that to 2 billion users.

Next to estimate the infrastructure cost. I'll use YouTube premium's cost to estimate how much infrastructure costs are. It's a shot, it might not be an accurate one. So I know that a YouTube premium account is $18/month for 5 people. This means per person it's $3.6/user / month. In a year, that is ($3.6/user)(12 months) = $43.2/users

Development costs - I'll estimate there are 200 developers on the YouTube team who makes about 200K/year. Which gives us (200 developers)(200k/year) = 40,000K = 40 million. The development cost/users = 40M/2B = $0.02/user.

For marketing costs, I'm assuming YouTube has a lot of marketing behind it. At least 10% of Google's revenue is spent towards marketing. I'm going to assume YouTube gets 2% of the 10% because of the amount of usage on YouTube. If Google's revenue is 80B (assumption) then 10% of 80B is 8B. 2% of 8B is 16M. To find the marketing cost/user I will divide 16M / 2B = $0.06/user.

In total the cost per users is: infrastructure cost ($43.2/user) + development cost ($0.02/user) + marketing cost ($0.0.06/user) = $43.28/user.

In hindsight, that number seems fairly high. I would revisit the infrastructure cost. YouTube premium's pricing might not be the right baseline. Another baseline i would estimate with would be the pricing of AWS which is $10/month for 20 users. Using that it would cut down infrastructure cost to ($10/month)(1/20 users)(12 months) = $6/user.