Who really makes money off online video
Today Associated Press ran an article on how Cisco Systems benefited from online video explosion and apparently is either considering new product lines or vastly improving the existing ones to accommodate the YouTube phenomenon:
Charlie Giancarlo, Cisco senior vice president and chief development officer, said the push also is forcing Cisco to change the way its products are built to deliver high-quality video, which puts more strain on the network than voice or data transmissions.
What’s interesting here is that the flagship online video site - YouTube, has never made a dime of profit, and depending on the server bills and advertiser saturation, might never reach green. Same goes for Google Video and other large scale video projects, whose bandwidth-to-ads margins are, one could imagine, pretty slim. At the same time there are these “hidden” players of the industry, who benefit tremendously, since their stuff sells and sells fast. Cisco is one of them, another hidden flagship of the online video industry is Akamai, whose 12-month share price going from $21.88 to $54.64 looks pretty nice to any investor who got in at the right time.
So if you judge online video industry by the money that YouTube and Google Video made, it’s really insignificant. If you judge by the sales that Cisco and Akamai made, all of a sudden it’s multi-billion-dollar industry.
Same goes for some other industries like e-commerce and FedEx. If you track e-commerce trends by the sales and margins of Amazon.com, Staples.com or other players, you might think that the margins are tough and price competition is enormous, therefore being in e-commerce is more of a curse than a solid business model. But both successful e-commerce shops and unsuccessful ones ultimately turn to their FedEx guy for shipping, and a 5-year curve of FDX follows US e-commerce volume closer than that of AMZN or other significant pure-e-commerce players.