Reddit, Facebook, Myspace, Google, Bing, Youtube, etc. are all free, and yet they provide services that are expensive to run. Youtube in particular is hosting probably several terabytes of video, and they need redundant backups of everything, because users would be extremely pissed if their videos mysteriously disappeared or got corrupted. Even ignoring backups, they still need at the very least 2 copies of every video file, because they store the original raw file that the user uploaded, and then a converted version which is suitable to be streamed over the internet. They do this, because they’re planning for future improvements in both Internet bandwidth, and new video compression technology. They keep the raw version, so that they can reconvert the video to newer and better formats as those formats come out (and they’ve already done this once, when they introduce the HD-Video feature, which means they currently have 3 copies of most videos: the raw, the SD version and the HD version).

That’s just storing the video. The other side of the equation is streaming the video to millions of users everyday. Try to open up and play 3 YouTube videos at a time. Do they all play fine? Try playing 4. Then 5. How many can you play before the videos start lagging because you’re using up all your bandwidth? Most of you probably can’t do more than 20, and I’d be really surprised if any of you could do 100. How much does your Internet bill cost? Now think about the fact that YouTube has to stream hundreds of thousands of video simultaneously, and think about what their internet bill might be. Add in the costs of hard drives. And the electricity bill (they probably have thousands of computers, and they all need to be cooled). YouTube hasn’t disclosed its financial information, but people have estimated it at 1 million to 5 million per month. And before they had advertisement, they had zero sources of income.

So YouTube was a site that had a gross income of zero, and a gross expense of a couple million per month. Google looked at it, and said “I think it would be a wise business decision to buy YouTube for 1.65 billion dollars”. What the fuck?

It turns out that this was indeed a relatively wise business decision, and YouTube now makes about a billion dollars in revenue per year. How? Advertisement.

To just say “advertisement” is a bit misleading. Most people, when they hear this term, have the mental model “a lot of people go to Youtube, so if I put my ad on Youtube, I’ll get a lot of people viewing my ad”. This is the way ads worked back in the 80s and 90s. Today, ads are hyper targeted. Google tracks your online activities, and builds a psychological profile of you. It records every search you make. It can look at the IP address the search requested from to determine where you were when you made that search (at home? at the office?). It can cross-reference that with the times you made those searches to find out what your working hours are (9 to 5? Work on weekends? Odd hours?) It can look at your search terms during various holidays to determine what religions you subscribe to. If you use GMail, it can find out who you talk to. It knows where and when they work, what their interests and religions are. It can look for keywords and diction usage to determine whether those people are friends, coworkers, or strangers. If you forward an e-mail, it knows what jokes you found funny, which pictures of cats you found cute. When you arrive at a Youtube video someone linked you to, it records whether you watched the video all the way to the end, or if you lost interest midway through. If you click one of the “related videos”, it now knows you’re generally interested in the topics that the two videos have in common. Google is the ultimate stalker. And God help you if you’ve actually uploaded a video — of yourself!

As a quick aside, Facebook is also “guilty” of stalking you, except that arguably, Facebook does it much more effectively. It straight out asks you what your interests are, where you live, where you work, what schools you went to, who your friends are, who’s your family, who have you dated, who have you worked with, who have you joined clubs with, what events are you attending, are your friends also attending this event, what quizzes and lolcats do you post on each other’s walls, and a box outlining exactly where you are within photographs. The one saving grace is that Facebook is a lot smaller than Google, with a smaller userbase (older people, in particular, seem less interested in FB). If one ever acquires the other (more likely Google acquiring Facebook than the other way around, methinks), kiss your privacy goodbye.

So when you buy an ad with Google, you’re not saying “I’ll give you $100 if you make sure my ad is seen by a million people”. You’re saying “Listen Google, I sell a widget, and I make a net profit of $10 for each once sold. I’ll tell you what, I’ll pay you a $5 commission for each of my widgets you sell.” Google tend looks at its vast database of psychological profiles, determines who would, with 98% certainty, actually buy your widget, picks 20 of them, shows those 20 people your ad, and then takes $100 in commission. That’s the theory, anyway.

So Google isn’t in the business of search engines, despite what the general media would have you believe. Google is in the business of information gathering. Their public motto may be “do no evil”, but I’m certain that internally, their culture is much closer to “knowledge is power”.

I’ve been asked several times why I don’t use GMail. Well, the above is one factor, but it’s not the only one. After all, I’m somewhat resigned to the fact that everything you to do on the Internet is public, and every company is watching you. What actually made me refuse to use GMail was when I read their EULA: It said that if you decide to delete anything (delete old e-mails, or delete your whole account or whatever), they’d simply flag it as invisible to you, but they’d still keep a copy for their psychological profiling purposes (they didn’t phrase it like that, but that’s what they were saying). That was simply too creepy for me, so I decided to boycott GMail. Unfortunately, some of my friends do use GMail, and so when I write to them, Google gets to keep and archive a copy of this e-mail forever. I’m not sure how I feel about this yet.