YouTube was acquired for almost $1.7 billion in 2006 by Google. It makes money through advertising and subscription revenues. YouTube advertising network is part of Google Ads, generating more than $28B in revenue by 2021. YouTube also makes money with its paid memberships and premium content.
- YouTube origin story
- YouTube mission statement
- How much money does YouTube make?
- Is advertising the right business model for YouTube?
- YouTube subscription-based business model
- Summary and conclusion
- Related Business Models Case Studies
YouTube origin story
Going back and looking at the YouTube story might be a good exercise to understand the wild success it experienced in a short period and what the YouTube business model might look like in the future.
YouTube start: It all began at the San Diego Zoo
April 23rd, 2005, Jawed Karim, a German-born boy, who moved to Minnesota with his family in 1992, uploaded a video entitled “Me at the zoo:”
As reported by AdAge back in July 2006:
The popularity of YouTube is growing at an astronomical rate, as web traffic to the video-sharing site grew 75% just in the week ending July 16, from 7.3 million to 12.8 million unique visitors, according to Nielsen/NetRatings. Traffic to the site has grown nearly threefold — 297% — since January, making it the fastest-growing site online.
YouTube copyright issues and how it dealt with them
As growth picked up right away, problems for copyrighted content loomed ahead.
The same AdAge reports – in regard to the YouTube business model:
Still in the process of building its advertising model and sales team, YouTube is experimenting with a number of sponsor partnerships. Last month, NBC struck a deal with YouTube to promote its fall TV lineup just months after ordering the site to take down the copyrighted video. Under the terms of the agreement, NBC is creating an official NBC Channel on YouTube to house its fall preview with exclusive clips to promote shows such as “The Office.” And earlier this month, Walt Disney tapped YouTube to promote “Pirates of the Caribbean: Dead Man’s Chest,” with rich-media banner ads.“
Google acquisition of YouTube for $1.7 billion in less than two years
YouTube founders managed to survive and thrive until, in 2006, the big hit arrived. Google purchased YouTube for almost $1.7 billion.
As reported by NBC News back in 2006,
“Internet search leader Google is snapping up YouTube for $1.65 billion, brushing aside copyright concerns to seize a starring role in the online video revolution.”
And it goes on:
“The price makes YouTube Inc., a still-unprofitable startup, by far the most expensive purchase made by Google during its eight-year history. Last year, Google spent $130.5 million buying a total of 15 small companies.”
Explosive growth: how YouTube got to over two billion views by 2010
YouTube is still among the most popular sites on earth
According to Similar Web estimates, in the period going from March-May 2022, YouTube is the second most popular site in the world, right after Google. And it has stunning engagement metrics.
YouTube mission statement
As explained on the YouTube website:
“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.”
How much money does YouTube make?
In 2021, YouTube generated over $28 billion in advertising revenue alone.
This represented a 45% growth compared to 2020.
Just in 2017, YouTube generated less than $10 billion in ad revenues.
Yet, as Google ramped up and fully integrated YouTube into its advertising machine, its revenues skyrocketed.
In addition, YouTube also generates additional revenue through YouTube Prime, the subscriber’s service, for users that want to enjoy a version of YouTube without ads.
That means Google’s YouTube acquisition has turned out to be a very successful one so far, as the company might be worth anywhere between $300-500 billion (depending on the multiple you might want to apply based on the market context).
Is advertising the right business model for YouTube?
As explained in Google’s annual report:
Over time, we expect our monetization trends to fluctuate. For example, we have seen an increase in YouTube engagement ads, which monetize at a lower rate than traditional desktop search ads. Additionally, we continue to see a shift to programmatic buying which presents opportunities for advertisers to connect with the right user, in the right moment, in the right context. Programmatic buying has a different monetization profile than traditional advertising buying on Google properties.
The number of paid clicks through our advertising programs on Google properties increased from 2016 to 2017 due to growth in YouTube engagement ads. The decrease in cost-per-click was primarily driven by continued growth in YouTube engagement ads where cost-per-click remains lower than on our other advertising platforms.”
The advertising business model for media is not new, and it represents the primary driver for Google’s revenues today, and we can well hypothesize that it will be the primary driver for both Google and YouTube in the next years.
As explained in Google’s annual report “We also experienced growth in YouTube revenue driven primarily by video advertising across TrueView with a growing contribution from ad buying on DoubleClick Bid Manager, as well as improvements in ad formats and delivery.“
The advertising business model is not the only possible.
As Netflix has been able to grow into a multi-billion dollar company with its subscription business model, also YouTube is experimenting with that.
In the meanwhile, Google (now Alphabet) is transforming YouTube into a fully operating advertising machine, which doesn’t look, so far, that far from how Google monetizes its pages.
YouTube subscription-based business model
Formerly known as YouTube Red, YouTube Premium includes features across YouTube and the new YouTube Music app as well as access to all YouTube Originals series and movies.
What does YouTube premium comprise?
- Ad-free videos: Watch millions of videos without ads
- Download videos to watch offline: Save videos and playlists on mobile devices and play them offline
- Play in the background: Keep videos playing when using other apps or when your screen is off
What does YouTube Music comprise?
- Easily explore the world of music with the new and improved YouTube Music app
- Ad-free music: Listen to millions of songs without ads
- Download music to listen offline: Save music and playlists in the YouTube Music app and listen offline
- Play in the background: Keep music playing when using other apps or when your screen is off
What does YouTube Originals comprise?
It comprises YouTube’s original series, and movies range from dramas featuring award-winning actors to comedies with top YouTube creators and documentaries covering multi-platinum artists. With YouTube Premium, you have access to all YouTube Originals, available to watch on all devices. You can find the list of movies and series on the YouTube Originals channel.
What does YouTube Kids comprise?
Ad-free and offline play in the YouTube Kids app
What does YouTube Gaming comprise?
Ad-free, offline, and background play in the YouTube Gaming app
YouTube Gaming filters videos from YouTube to give you the best experience for watching gaming videos. You’ll find everything that’s in YouTube Gaming on the main YouTube app/site, but only gaming content on YouTube Gaming.
We cannot know how many YouTube paying members there are. However, YouTube is pushing on its paid memberships.
With an ad-free and offline library, YouTube music premium, and YouTube originals, the video-sharing platform might well be able to compete with Netflix, Spotify, and other media companies running on top of the subscription-based business model.
Summary and conclusion
Related Business Models Case Studies
Related business resources:
- Successful Types of Business Models You Need to Know
- The Complete Guide To Business Development
- Business Strategy: Definition, Examples, And Case Studies
- What Is a Value Proposition?
- Marketing Strategy: Definition, Types, And Examples
- Marketing vs. Sales
- How To Write A Mission Statement
- What is Growth Hacking?
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