Peter Kafka

Recent Posts by Peter Kafka

Does Google Need to Start Bulking Up Again?

wimbledonWhen the economy cratered last fall, even mighty Google was forced to pull back on spending: The company stopped growing its workforce and put several big expensive projects on hold.

But that’s likely to change, predicts Bernstein analyst Jeffrey Lindsay. He says that while Google (GOOG) is on track to shell out $1.4 billion on capital expenditures this year, that number will shoot up up more than 40 percent next year, to $2 billion.

That’s because even though ad dollars may have slowed down, Google’s search queries haven’t–they were up 50% in April. And while casual observers don’t think about it, running a search company is a capital-intensive business: More queries equal more servers. Lindsay estimates that a new data center built in the U.S. costs Google $600 million;¬†one built offshore runs around $300 million.

Interesting side note: Lindsay predicts that Google’s endless growth will eventually force it to rethink the way it runs YouTube and may end with the company figuring out a way to charge users who upload video, or at least, to limit their uploads. YouTube processes more than 13 hours of a video per minute, and a number that’s only going to increase, particularly as mobile video uploads pick up courtesy of devices like Apple’s (AAPL) new iPhone 3GS.

Strategically, we expect that the rising costs of hosting limitless video may encourage the company to consider positive changes with YouTube. Ultimately, we believe the company will need to find a way to charge for uploads or for viewing clips (or both), or begin to confront the reality of retaining a business where costs continue to outpace revenue growth.

But for now, YouTube is still a free-for-all, which is why we can all enjoy this clip of Michael Llodra bowling over a ballgirl at Wimbledon yesterday (she’s OK, but he ended up bailing on his match).