Too Cheap to Meter?
November 6th, 2009, by Scott Kantner
In his recent book Free, Wired magazine’s Chris Anderson asserts that bandwidth and storage are “too cheap to meter,” which allows YouTube to let us reminisce and chuckle for free:
While Anderson’s assertion may seem to be true from a philosophical standpoint, it’s not yet true an economic truth, or we wouldn’t have stories in USA Today talking about how YouTube is costing Google money. In June, Michael Liedtke authored a piece shedding some harsh light on the reality of “Free”:
Technology consultants RampRate projects YouTube’s operating losses this year at $174.2 million — far below the $470.6 million estimated by Credit Suisse analysts Spencer Wang and Kenneth Sena in an April research report that became a hot topic on Wall Street and the Internet.The big mystery is how much it costs Google to store and distribute the 20 hours of video that are sent to YouTube every minute.
After conferring with industry experts, Wang and Sena concluded Google will spend nearly $380 million on Internet bandwith, computer hardware, software and data centers.
But RampRate — a specialist in managing technology expenses — believes Google will spend about $83 million to provide the same things to YouTube.
The lower expense estimate presumes Google has negotiated money-saving deals with broadband providers and other behind-the-scenes players that play an integral role in moving data through the Internet’s pipes. RampRate also believes Google’s own propriety technology has helped hold down YouTube’s costs, an idea that Pichette endorsed in his Maclean’s interview.
Although it has been cutting costs to cope with the U.S. recession, Google can still afford to subsidize YouTube with the money it makes through its search engine. Google earned $4.2 billion last year and started off this year with a first-quarter profit of $1.4 billion.
“When people run models, they generally use standard industry pricing for bandwidth, storage, but we build everything from scratch,” [Google's] Pichette said at the time. “So we know our cost position but nobody else does.”
[emphasis added]
Does it seem logical that a service based on raw materials “too cheap to meter” should have trouble making money? It’s certainly not my intention to discredit Anderson’s thesis about Free, on the contrary, I tend to agree with his primary point that dramatically decreasing costs will change not only the technology we use, but the very way we do business. YouTube, Facebook and Twitter, all of which are Free, have already revolutionized the way we can all go to market for basically zero cost.
My point is more of a practical one. Bandwidth and storage continue to cost less, but they cost something significant enough that we still negotiate price when we purchase. Even Google does, though they won’t tell us how well they do it. We therefore need to be not only mindful of the cost, but of continuing to properly manage the capacity. Abundance tends to breed waste, and sooner or later Parkinson’s Law comes into effect, at which point we find ourselves breaking out the checkbook to buy more even of the commodities that are seemingly “too cheap to meter.”
It is still best practice to put tools in place to monitor, control, and efficiently utilize bandwidth. The Internet OC-12 I priced just a few weeks ago was still measured in dollars per megabit, not cents.
It is also still best practice to manage storage, because it still costs real money also. What I mean by “manage” in this sense is giving your sysadmins tools and the time to go through the bowels of your storage systems and look stale old data that can either be deleted, archived to removable media, or moved to cheaper online storage. You couldn’t possibly have heard it, but that was the sound of 90,000 syadmin’s heads simultaneously exploding. For many sysadmins this kind of grunt work is simply beyond the pale, but notice I didn’t say it had to be a manual effort. There are great tools out there to help, FolderSizes being a personal favorite on the cheap end. If you have really deep pockets for some serious automation, IBM’s Tivoli Productivity Center for Data is the luxury car bus option.
And if you’re the one that gets stuck doing the storage management, don’t forget to head over to YouTube for an occasional break…while it’s still Free! You can find some great “how-to” tips on cleaning your hard disk with an acetylene torch.
//spk
