How little YouTube pays for Internet connectivity

I just finished reading an interesting discussion of Web 2.0 issues entitled Web-Reloaded? – Driving Convergence in the Real World, by Arthur D. Little's Telecom, IT, Media & Electronics group in Germany (available free, in English, if you fill out this form which is in German).  But there were a few of their statements I questioned including the assertion that, with more than 80 million videos being viewed by day, YouTube's "bandwidth and service costs are estimated at between € 245-325K a month."

This is not the first time I've seen assumptions that YouTube must pay a lot for their Internet connectivity.  Last June (when YouTube was using 20 Gbps to support a mere 50 million videos per day, Keith McMahon suggested their ISP connectivity costs were at $512K per month.  Back in April, Forbes suggested that only 13 million videos per day might be costing YouTube $1 million per month.  Many others echo this idea of a large expense for "bandwidth." Even Wikipedia repeats the idea:

Some industry commentators have speculated that YouTube's running costs — specifically the bandwidth required — may be as high as US$1 million per-month, thereby fuelling criticisms that the company, like many internet start-ups, did not have a viably implemented business model.

I don't have inside information on YouTube's bandwidth costs but I do know something about peering thanks to many years of reading the Cook Report on Internet, e.g. this (subscription required), occasional tidbits from North American Network Operators Group (NANOG) meeting reports and articles like this by Bill Norton of Equinix.

I can assure you, as soon as YouTube's traffic became a measurable fraction of Internet traffic, probably early last spring, the tables turned and YouTube began to be able to negotiate free peering. In fact YouTube's peering coordinator Colin Corbett showed up at the June 2006 NANOG meeting to explain who they were and where an ISP could peer with YouTube.

The first peering candidates are second and third tier ISPs who have to pay Tier 1 ISPs for "IP Transit", i.e. for access to Internet addresses they can't reach directly or by peering with other ISPs.  As of June, YouTube was connected to the largest US public peering network, Equinix, in San Jose and Los Angeles and to the second largest, PAIX, in Palo Alto(?).  Any 2nd or 3rd Tier ISP with access to Equinix or PAIX would be investigating peering with YouTube in order to avoid paying a Tier 1 ISP for access to YouTube content.

As a service like YouTube grows to become a significant source of Internet content, their leverage with tier 1 ISPs increases. YouTube's traffic is very asymmetric – a very small request comes in and a very large video goes out.  If they are using one Tier 1 ISP for IP Transit service, other Tier 1 ISPs see this large asymmetry in their Tier 1 peering arrangements. Typically, Tier 1 ISPs interconnect with each other on a "free" basis as long as they have symmetric traffic.  Suddenly there's incentive for other Tier 1 ISPs to interconnect with a high volume asymmetric content source like YouTube.

The specifics of peering arrangements are murky as most deals under NDA, so there is no way to know for sure what deals YouTube has been able to negotiate.  But it's clear they've been at it for some time now and, even without the Google acquisition, YouTube's expense for Internet connectivity was not soaring but in fact was more and more under YouTube's control.

And of course, even if YouTube (now Google) had to pay retail for Internet connectivity, their potential revenue is so large, it would be a wildly profitable business.  But that's a different story.

Comments

[brough]

An ultra savvy friend just pointed out a more recent (Rev 2.7 vs. 2.5) version of Bill Norton's excellent paper on peering:
http://www.nanog.org/papers/isp.peering.doc

[Comedy Search Engine]

WHy is their bandwidth usage such a secret I wonder?

[brough]

I don't think their bandwidth usage is secret. The only secret is what they are paying for it.
Colin Corbett said at the NANOG meeting in June that YouTube was serving 50 million videos per day and delivering 20 Gbps of outbound traffic. Typically, ISPs measure traffic (for IP Transit or for peering) by counting bytes over five minute intervals and then taking the 95th percentile of all such five minute traffic counts. So most likely, the 20 Gbps Colin quoted represented the 95th percentile of all 5 minute intervals in the previous month (May 2006).

[Mark Tomin]

I don't think this is that bad. They must upload to provide service. It costs them only 0.01 cent per user. Not much considering this is probably their major expense.

http://t1-lines.net - T1 Lines

[Otto]

Google bought some backbones, either it is for the upcoming IPTV wave or to support YouTube it is unknown but it is interesting see how the giants will cope with the bandwidth oversaturation.

http://t1connections.net

[jeff paul internet marketing]

Thanks for bringing this to my attention - I’ve reviewed it myself now. A very enjoyable read

[Los Angeles web design firm]

I don't know about their transaction. I don't know how much they pay for. The only thing I know is youtube is one of the popular site in the web.

-faith-

[watch-movies]

I woudl have to say they are streaming movies and videos for free online so they musth be making a ton more with their adwords and obviously cause of peering. Also i am sure some or the other ISP wants to have their name attacted to Youtube and google so they must even provide free access and bandwidth.