Photo-sharing sites, social networks, and video distributors (e.g., Flickr, Facebook, YouTube) are booming in developing nations like Turkey, India, and Brazil - but struggling to turn a profit from online advertising alone.
Internet entrepreneurs have always operated under the ideals of uniting everyone in a single online "village" by providing free services to huge global audiences. But they also assume the online advertising would cover costs, and in the long run, make them a profit, the New York Times reports.
The cost of delivering content to the developing world, where bandwidth is limited and requires more servers, can be prohibitively high. YouTube, for instance, could lose $470 million in 2009, partly from the high cost of delivering its billions of videos, according to Credit Suisse analyst Spencer Wang.
"The problem is [users in developing countries] are eating up bandwidth, and it’s very difficult to derive revenue from it," explained Dmitry Shapiro, CEO of video-sharing site Veoh, which last year decided to block its service from users in Africa, Asia, Latin America, and Eastern Europe.
Some 1.6 billion people in the world have internet access, but less than half have incomes high enough to be of interest to major advertisers. Ad rates in most developing countries are "ridiculously low," said Michelangelo Volpi, chief executive of video site Joost, which has half of its audience overseas.
If web companies really want to make money, they would shut off all those countries, he added.
Some are exploring alternatives. News Corp.'s MySpace social network (with 45% of its members overseas) is testing Profile Lite, a stripped-down version of the site that requires less bandwidth. It will be the default version for users in India, for example, where there are 760,000 users.
YouTube has toyed with the idea of restricting bandwidth in certain countries as a way to control costs, which would make for a slower and lower-quality viewing experience.
Facebook is also faced with a similar dilemma. About 70% of its estimated 200 million members live outside the US, and the company's servers are swamped monthly with 850 million photo and eight million video uploads. To lower costs, Facebook is considering lowering the quality of videos and photographs delivered to some regions.
