The YouTube Business Model – How does YouTube make money? [2020]

5 mins read
YouTube Business Model

Company Profile:

YouTube is an online video hosting and sharing platform service that allows users to view, upload, rate and share videos. It is a social platform where users can subscribe to other users as well as comment on videos. YouTube allows users as well as corporations to generate content, effectively democratizing the content creation for videos.

  • Founded – 2005
  • Founder(s) – Chad Hurley, Steve Chen, Javed Karim
  • CEO – Susan Wojcicki
  • Headquarters – San Bruno, California
  • Type – Subsidiary
  • Industry – Internet, Video Hosting Service
  • Competitors – Vimeo| Twitch | Dailymotion | Metacafe| Veoh

YouTube Background and History

YouTube was started in 2005 by founders Chad Hurley, Steve Chen, Jawed Karim, all early PayPal employees. Hurley had graduated with a BA in Fine Arts from Indiana University of Pennsylvania and Chen and Karim were classmates at University of Illinois at Urbana-Champaign, where they graduated with a BS in computer science.

How was YouTube started?

YouTube was originally started as an online dating service. It was named “Tune In, Hook Up” and the domain name YouTube.com went live on Feb 14th, 2005. The concept of the online dating service failed, but the founders soon realized that had a great video uploading platform. They made the changes to YouTube to make it the first video sharing platform after they were looking for the Janet Jackson/ Justin Timberlake Super Bowl halftime show and couldn’t find any videos of it online.

At the time YouTube was started, the founders wanted anyone to be able to use YouTube to upload and view videos, using standard web browsers and moderate internet speeds. Hurley’s strength were his design skills and he created the logo and the design of the website. Chen and Karim were involved in both design and programming and made sure that the website worked properly and uploading and playback didn’t have any issues.

Which is the first YouTube video?

The first YouTube video uploaded was by one of the founders Jawed Karim, titled “Me at the zoo” and it was recorded at the San Diego zoo by Jawed’s high school friend Yakov Lapitsky. Considering this video has a running time of 18 seconds and it captures a perfectly ordinary moment, the view count for this video is over 97 million, which is pretty impressive. Jawed, who has a YouTube channel with the same name, has this single YouTube video uploaded to it and it has over 800K subscribers.

This video represents a truly historic moment for YouTube and a glimpse of what YouTube would become in the future. It represents how ordinary people could become broadcasters of the future. Business Insider ranked this video as the most important YouTube video of all time.

YouTube’s acquisition

Some of the early investors in YouTube were Sequoia Capital who invested $3.5 million, followed by Artis Capital Management who invested another $8 million in 2006. Google acquired YouTube for $1.65 billion in stock in 2006. For a startup that was just a year and half old, that was a steep price. At the time of the acquisition, YouTube was still unprofitable and the second most expensive acquisition for Google until then, considering that Google had spent less than $131 million on acquiring 15 small companies in 2005.

YouTube’s growth

YouTube has come a long way since its acquisition in 2006. By 2010, Google had over 2 billion views per day. According to Alexa, YouTube is the 2nd most visited website across the world wide web, second only to google.com. YouTube’s growth has been exponential, with several billion views a day.

What is YouTube’s mission?

YouTube’s mission is to give everyone a voice and show them the world. We believe that everyone deserves to have a voice, and that the world is a better place when we listen, share and build community through our stories.

YouTube Statistics

How many users does YouTube have?

YouTube has over 2 Billion monthly logged in users and more than 500 hours of content are uploaded to YouTube every minute. People watch over billion hours of videos every day and generate billions of views.

YouTube has launched local versions in more than 100 countries and YouTube is available in over 80 different languages.

What is the revenue of YouTube?

The annual revenue for YouTube in 2019 was $15.1 billion and the annual costs to run YouTube in 2019 was $6.35 billion, including content acquisition costs.

How many employees does YouTube have?

YouTube has 1,121 employees.

What are the demographics of YouTube?

The world’s internet population is 4.57 billion people, which is 59% of the world’s population. 72% of Internet users use YouTube and 70% of the YouTube views come from mobile devices. On average, a mobile session lasts more than 40 minutes.

According to a survey done by Pew Research center in 2019, 73% of US adults use YouTube, out of which 91% were between the ages of 18-29. US accounts for 15% of YouTube viewership.

YouTube Business Model

Anyone can create a YouTube channel and YouTube is free to use. How does YouTube make money and what is YouTube’s business model? YouTube primarily earns its revenues from Advertisements and subscriptions.

Ad revenues

Ad revenues are a major part of YouTube’s revenues. In 2019, YouTube reached $15 billion in ad revenues, a 36% growth over 2018. The largest contributors to the growth were Google’s direct response and brand advertising products.

Subscriptions

YouTube subscription products include YouTube Premium, YouTube Music and YouTube TV. YouTube has over 20 million Music and Premium paid subscribers, and over 2 million YouTube TV paid subscribers. YouTube subscriptions and other non-advertising revenues added up to $3 billion in total revenue.

YouTube Premium

With YouTube Premium, you can enjoy ad-free access to videos, download videos to watch offline, and background play on YouTube and YouTube Music. YouTube Premium has a one month free trial, after which it is priced at $11.99 a month.

YouTube Music

YouTube Music is music app from YouTube and allows users to browse through songs and music videos on YouTube. You can also purchase YouTube Music Premium which lets you listen to music, ad-free. YouTube Music Premium is priced at $9.99 a month.

YouTube TV

YouTube TV is a subscription streaming service that offers live TV, on demand video and cloud-based DVR from more than 70 television networks. 
YouTube TV is priced at $49.99 per month for 1 membership with up to 6 accounts.

Conclusion

YouTube is now the default home for video content creators world wide and a platform that cannot be ignored for digital marketing. The foresight and vision of Google’s founders in acquiring YouTube has definitely paid off, several times over.

References

  1. Statistia.com
  2. BusinessInsider.com
  3. PewResearch.org
  4. YouTube Press
  5. Alphabet Annual Report

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