An interesting counterpoint to the whole argument that YouTube is a financial drag on Google has been posted on the Telco 2.0 blog. From time to time, I’ve expressed concern that YouTube’s “bring it all on” approach to online video, which by some analysts’ estimates loses many hundreds of millions of dollars a year, is unsustainable.

In a long, detailed analysis entitled “Google: The Internet Behemoth and how it profits from YouTube”, the authors argue that YouTube is actually a cornerstone for a much larger and cagier domination strategy for Google — one that has CDN (content delivery network) providers like Akamai in its sights.

Their basic conclusions:

“We believe that YouTube is used indirectly to drive profits at the parent, and that Google is currently incentivized to keep these profits hidden from prying eyes. The key indirect benefits accruing to Google of owning YouTube are as follows: 

1. YouTube gains Google a critical slice of growing online video eyeballs, which will attract more marketing dollars to the Internet as a whole. This is much more important in the USA, where the main competitor Hulu is ad-funded than the UK, where the BBC iPlayer is taxpayer funded;
2. YouTube gains Google yet more important meta-data which can be cross-pollinated with data from other Google services;
3. YouTube traffic strengthens Google specifically in peering negotiations and generally in network design;
4. YouTube is probably a small fraction of Google’s overall cost base, and the spin-off benefits from lower overall unit costs; and
5. YouTube positions Google very powerfully for a key role as a gatekeeper in the copyright world.

If this is indeed what Google is really up to, and it’s willing to sustain losses indefinitely at YouTube in order to feed its high-level corporate strategy, then the implications both for marketers and for video-hosting competitors get pretty interesting.

Marketers, for their part, would be able to continue counting on having an extremely inexpensive reach vehicle for getting their companies’ and organizations’ messages out in video. But at the same time, they need to be fully cognizant of how the benefits this kind of free lunch come at a considerable cost and risk (see my past posts “YouTube is a Two-Edged Sword” and “No Free Lunch”).  It’s still important, I believe, for an organization to maintain both a public “reach” video presence (via YouTube) and a private “engagement” video presence (via a services like Brightcove, PermissionTV, or Ooyala) on their website.

These private services, however, will continue to feel pricing heat, as they find it more and more difficult to compete with the free hosting offered by YouTube.  How long before somebody plays the “predatory pricing” card?  Meanwhile, though, these private video hosting services continue to focus their offerings on engagement and monetization features that directly make money for their customers.  Look for a lot of new capabilities in the year ahead that will once again change the landscape of options video marketers have.