It may sound absurd but YouTube actually started out as a dating website. Jawed Karim, Steve Chen, and Chad Hurley created YouTube back on 14th February, 2005. All three of the founders were former PayPal employees who worked together to give us YouTube. YouTube was later bought by Google in November 2006 for a staggering amount of US$1.65 billion. This transaction brought the YouTube business model under the umbrella of Google. YouTube now operates as a subsidiary of Google. As of now, YouTube is the largest online video-sharing platform. Moreover, it is also the second largest search engine on the internet as well, just behind Google.
The statistics regarding YouTube are crazy. Daily, more than billion hours’ worth of video is streamed by users around the world. Furthermore, creators upload about 400 hours’ worth of content on YouTube. The numbers are huge and hard to believe, but this is the truth. YouTube has grown into an entertainment staple around the world. The wide variety of videos on the website means that there is something for everyone.
YouTube is available in 76 different languages and is used by various brands throughout the globe. Brands and influencers use it to promote their content. YouTube is also used to make money. Content creators monetize their videos by allowing the video-sharing platform to play ads between their videos, before they start, or after they end.
How Does YouTube Operate?
YouTube has a humongous collection of videos. It allows users to upload new videos and share them with their subscribers. Users can upload their videos for free on YouTube. Every user has their own channel where they can upload new videos and make playlists out of their uploaded videos. A channel is like a homepage that allows the user to personalize it to their liking.
Anyone can watch the videos for free. Apart from the usual videos, YouTube has special platforms for games and music. YouTube Gaming makes it easier to livestream gameplays. Similarly, YouTube has a huge collection of all the latest music from around the world. It is used as a medium of promotion and distribution of music.
Users can like and dislike the videos on the website. Each user has a playlist of their like videos that they can revisit whenever they like. Moreover, they can also make personalized playlist of videos that can be shared with different users around the world.
What is the YouTube Business Model?
Users have free access to all the videos available on YouTube. Similarly, the users can upload the videos for free. Now, you may be wondering how YouTube makes money? Remember that I mentioned that users can monetize their videos by allowing YouTube to play ads within their ads? Yes, they make money from advertisements.
There is no such thing as free service. In today’s time, if you are using a free service, then you are the product. Let me explain that. YouTube has companies that want to put up their advertisements on the website. The video-sharing website shows those ads to you while you surf YouTube. In return, these companies pay YouTube for ad space. So basically, you are the product that Google sells to other companies to keep YouTube free for most of their user base.
There are more than 1.8 billion users that flog to YouTube every month. Google keeps tabs on the habits of these users and creates a profile of each user. This profile is shared with companies that want to put up their advertisements on Google. Hence, YouTube provides targeted advertisements to its users. Targeted advertisements are known for having greater click through rate.
Furthermore, YouTube has a premium offering for its users which is called YouTube Premium, formerly known as YouTube Red. A similar offering to Netflix. It is a subscription service that removes all advertisements hosted on YouTube. Moreover, it has exclusive content curated by partners of YouTube. They make money through this offering as well.
How Does the YouTube Business Model Make Money?
YouTube employs an advertisement model to make money. The video-sharing platform contributes 11% of the US revenue of Google. While most of the revenue comes from advertisements, subscriptions make up a large chunk of revenue as well.
This is an example of SERP advertising. The advertiser pays YouTube for the number of views and clicks on the ad. The ad is placed strategically around the website to have more clicks per view.
Embedded Advertisements in YouTube Videos
This is another stream through which YouTube rakes in money. Advertisements are embedded in the videos to maximize the clicks per view. These ads can be played before, during or after the video that is played by the user. The ad plays for a certain amount of time before the user can skip it. Ads that are shorter than or equal to 5 seconds cannot be skipped.
YouTube charges the advertiser on the basis of views and clicks on the ad. A certain percentage of the revenue from these ads go to the content creator of the channel.
Landing Page Branding
YouTube allows for advertisement banners on their homepage. Advertiser pay to host an image or video to promote their brand in that space.
New Addition to YouTube Business Model: YouTube Premium
YouTube has added a freemium aspect to their business model by introducing YouTube Premium. It is a subscription based service which offers an ad-free experience across various YouTube offerings. It offers a set of features such as:
- Ad-free surfing
- Access to YouTube Music
- Access to exclusive YouTube Premium Content
- Ability to download videos for offline viewing
- Background play so that you can switch apps in mobile phones
Users from USA pay $11.99 monthly for this service. The subscription fee varies across countries.
YouTube TV is a subscription service that is similar to cable TV. It is exclusive to US as of now and allows the subscribers to watch various cable channels. It is similar to TV cable, but it is portable. The service is available at $49.99 per month and gives access to six different accounts.
You can stream TV channels such as ABC, FOX, Disney, ESPN and many more with this service.