Acquired by Google, in 2006, for $1.65 billion, YouTube is now worth many times over. In 2022, YouTube generated over $29 billion in revenue from advertising alone. YouTube is part of Google (now named Alphabet), and as such, it is owned by main Google’s Alphabet shareholders and is one of the fastest-growing segments for the company.
| Aspect | Description | Analysis | Examples |
|---|---|---|---|
| Products and Services | YouTube provides a platform for users to upload, view, and share videos. Users can access a wide variety of content, including music videos, vlogs, tutorials, entertainment, and more. The platform also offers features like video monetization through ads, live streaming, premium subscription services (YouTube Premium), and YouTube TV, a subscription-based live TV streaming service. Additionally, YouTube has tools for creators to manage and analyze their content, including YouTube Studio and YouTube Analytics. | YouTube’s core offering is a video-sharing platform with diverse content categories. Monetization through ads, live streaming, YouTube Premium, and YouTube TV diversifies revenue streams. Creator tools such as YouTube Studio and YouTube Analytics empower content creators. YouTube caters to both viewers and content creators, creating a symbiotic ecosystem. | Video-sharing platform with diverse content, video monetization through ads, live streaming, YouTube Premium subscription, YouTube TV live TV streaming service, creator tools (YouTube Studio, YouTube Analytics), symbiotic ecosystem for viewers and content creators. |
| Revenue Streams | YouTube generates revenue primarily through advertising. It offers various advertising formats, including display ads, overlay ads, skippable video ads (TrueView), non-skippable video ads, and more. Advertisers pay for ad placements on the platform, and YouTube shares a portion of this revenue with content creators. Additionally, YouTube earns income from premium subscription services (YouTube Premium) and YouTube TV subscriptions. | The main source of revenue for YouTube is advertising, with various formats catering to advertisers’ needs. Revenue-sharing agreements with content creators incentivize high-quality content. Premium subscription services (YouTube Premium) and YouTube TV subscriptions serve as additional revenue streams. YouTube balances free and premium content offerings. | Revenue from advertising (display ads, overlay ads, TrueView, non-skippable video ads, etc.), revenue-sharing agreements with content creators, income from premium subscription services (YouTube Premium), revenue generated from YouTube TV subscriptions, balanced free and premium content offerings. |
| Customer Segments | YouTube serves a diverse customer base, including viewers who access content across various categories and creators who upload videos to the platform. Viewers encompass a global audience seeking entertainment, education, information, and more. Creators consist of individuals, artists, musicians, businesses, and organizations looking to share their content and engage with their audience. Advertisers also form a significant customer segment, utilizing YouTube’s advertising platform to reach their target audience. | Customer segments for YouTube encompass viewers, content creators, and advertisers. Viewers consist of a global audience seeking diverse content. Content creators include individuals, artists, musicians, businesses, and organizations sharing their content. Advertisers use YouTube’s advertising platform to reach their target audience. YouTube’s ecosystem caters to the needs of these diverse customer segments. | Viewers seeking diverse content, content creators (individuals, artists, musicians, businesses, organizations), advertisers utilizing YouTube’s advertising platform, a diverse ecosystem meeting the needs of various customer segments. |
| Distribution Channels | YouTube primarily operates through its website and mobile apps, offering viewers easy access to a vast library of videos. Creators can upload content directly to the platform. YouTube’s advertising platform allows advertisers to create and manage ad campaigns. YouTube also partners with various devices and platforms for broader distribution, including smart TVs, gaming consoles, and streaming devices. | Distribution channels for YouTube revolve around its website and mobile apps, accessible for viewers to browse and view content. Creators can upload videos directly to the platform. Advertisers use YouTube’s advertising platform for campaign management. Partnerships with devices and platforms expand distribution to smart TVs, gaming consoles, and streaming devices, enhancing accessibility. | Website and mobile apps for viewers to browse and view content, direct video uploads for creators, advertising platform for campaign management by advertisers, partnerships with devices and platforms for broader distribution to smart TVs, gaming consoles, and streaming devices, enhanced accessibility. |
| Key Partnerships | YouTube collaborates with various partners to enhance its content and reach. These partnerships may involve music labels and artists for official music video uploads, news organizations for news content, movie studios for trailers and promotional videos, sports leagues and teams for live sports broadcasts, and advertisers for targeted ad campaigns. YouTube also engages with content creators, providing resources, support, and monetization opportunities through the YouTube Partner Program. | Collaborations with music labels, artists, news organizations, movie studios, sports leagues, teams, and advertisers enrich YouTube’s content library and advertising opportunities. Engagement with content creators fosters a thriving creator community, with resources, support, and monetization through the YouTube Partner Program. These partnerships contribute to YouTube’s extensive content and user engagement. | Collaborations with music labels, artists, news organizations, movie studios, sports leagues, teams, advertisers, and content creators for content enrichment, advertising opportunities, and support through the YouTube Partner Program, contributions to a vast content library and user engagement. |
| Key Resources | YouTube’s key resources include its online platform and technology infrastructure, a vast library of user-generated and official content, a global user base of viewers and content creators, advertising partnerships and tools, and partnerships with music labels, news organizations, and other content providers. The YouTube brand and its commitment to user-generated content are significant resources that drive engagement. | Key resources for YouTube encompass its online platform and technology infrastructure, an extensive library of user-generated and official content, a global and diverse user base, advertising partnerships and tools, and collaborations with music labels, news organizations, and content providers. The YouTube brand and its emphasis on user-generated content are influential resources fostering user engagement. | Online platform and technology infrastructure, extensive content library, global and diverse user base, advertising partnerships and tools, collaborations with music labels, news organizations, and content providers, YouTube brand, and emphasis on user-generated content as influential resources driving user engagement. |
| Cost Structure | YouTube incurs costs related to its technology infrastructure, including data storage and video streaming. Content acquisition expenses involve licensing agreements with music labels and content providers. YouTube pays content creators through revenue-sharing agreements. Additional costs include employee salaries and benefits, marketing and promotional campaigns, and investments in platform development and moderation to ensure a safe environment. Costs can vary with content acquisition and platform maintenance. | Costs associated with YouTube’s operations encompass technology infrastructure maintenance (data storage, video streaming), content acquisition expenses through licensing agreements with music labels and content providers, revenue-sharing agreements with content creators, employee salaries and benefits, marketing and promotional efforts, and investments in platform development and moderation for a secure environment. Costs can fluctuate with content acquisition and platform maintenance requirements. | Costs related to technology infrastructure maintenance (data storage, video streaming), content acquisition expenses through licensing agreements, revenue-sharing agreements with content creators, employee salaries and benefits, marketing and promotional initiatives, investments in platform development and moderation for a secure environment, cost management influenced by content acquisition and platform maintenance needs. |
| Competitive Advantage | YouTube’s competitive advantage lies in its vast library of user-generated and official content, spanning a wide range of categories and languages. The platform’s accessibility, global reach, and user engagement make it a dominant player in the online video-sharing space. YouTube’s advertising capabilities and revenue-sharing model attract content creators and advertisers. Its premium subscription services (YouTube Premium and YouTube TV) offer additional revenue streams and ad-free viewing experiences. | YouTube’s competitive advantage stems from its expansive content library, accommodating diverse categories and languages. Accessibility, global presence, and user engagement establish its dominance in online video sharing. Advertising capabilities and the revenue-sharing model appeal to content creators and advertisers. Premium subscription services diversify revenue streams and provide ad-free viewing experiences, enhancing the platform’s appeal. | Expansive content library with diverse categories and languages, accessibility, global presence, and user engagement, dominance in online video sharing, advertising capabilities and revenue-sharing model attracting content creators and advertisers, premium subscription services providing additional revenue streams and ad-free viewing experiences, strengthened platform appeal. |
History of the Google-YouTube deal
In a video dated October 10, 2006, Steve Chen and Chad Hurley officialized the news of the acquisition of YouTube, from Google, for $1.65 billion.
The third co-founder, Jawed Karim, was already out.
And yet the three co-founders all became multi-millionaires, making probably $300 million each for Chen and Hurley and around $66 million for Karim.
At the time, Google was trying to launch its video service called Google Video.
Yet, Google, while already a tech giant back then, could not figure out how to make Google Video as successful as YouTube.
YouTube was indeed a rocket ship, and what concerned them most, the Google’s founders, Brin and Page, was that YouTube was also used as a search engine for video.
With video becoming a dominant format for the Internet by 2006, Google was quite concerned about being unable to keep up with YouTube’s growing quickly.
YouTube, on his side, was executed exceptionally well, backed by some of the prominent Silicon Valley VCs. Indeed, Sequoia backed YouTube through Roelof Botha.
Botha was CFO at PayPal before he joined Sequoia. He was a PayPal Mafia member.
The YouTube co-founders, looking for money to finance the operations that, since that point, had been running on Chen’s credit cards, turned to Botha, which they knew from PayPal.
Indeed, YouTube’s co-founders were former PayPal team members.
After PayPal had been acquired by eBay, Chen, Hurley, and Karim left to start their own company, which would later become YouTube.
By November 2005, Google, through Larry Page, had already started to seriously look into acquiring YouTube:
Thus, by February 7, 2006, the acquisition of YouTube by Google gets on the CEO’s desk as a priority.
In an initial consideration, Google is considering an offer for YouTube of $50 million.
We were in February 2006, YouTube was burning cash, it wasn’t generating revenues, and yet Google would eventually offer much more to secure it.
However, by February 2006, Google kept looking into ways to partner up, without buying YouTube.
In fact, when Google first proposed the deal to YouTube, things didn’t move forward, as YouTube’s founding team was looking for “the myspace deal.”
In fact, at the time, back in July 2005, News Corp., the company – at the time – owned by the business shark Rupert Murdoch, had acquired MySpace for $580 million in cash, setting an incredible precedent.
For Google’s executive team, that was way too expensive.
In fact, at the time, Google thought it could still figure out videos with its Google Video.
Yet, as months went by, Google Video didn’t gain as much traction as the executive team thought.
And as Yahoo showed up, things got way more interesting.
Google’s executive team was an incredible deal-maker, driven by its co-founder’s Page and Brin.
Meaning they knew when the timing was right to close a deal before a competitor like Yahoo stole it.
Eventually, the deal was closed at $1.65 billion, and YouTube became part of Google.
Thus, if we take YouTube alone, the company might be worth over $300 billion in revenue, which is astonishing and would represent an over 150x potential return for Google on this acquisition.
However, for one thing, it’s very hard to spin off the value of YouTube without Google’s advertising machine.
In fact, a key thing to understand, integrating YouTube wasn’t an easy fit, and while Google has managed to pull this off, this could have gone wrong in many possible ways.
Had YouTube continued without Google, the question is whether the company would have survived, given the many copyright issues it faced back then.
Indeed, YouTube had severe copyright issues, which Google had to solve early on.
In addition, Google has also successfully transitioned YouTube from a video search engine to a discovery video platform (more similar to TikTok than Google).
Today YouTube is definitely one of the most successful media platforms on the Internet and the only one able to successfully beat TikTok at its own game!
Breaking down YouTube Business Model
Today YouTube has become a successful advertising machine.
YouTube is one of the most popular sites on earth, with over 33 billion visits in March 2023.
YouTtub is very popular worldwide, even though over 20% of its traffic comes fro the US.
The most interesting aspect of YouTube is its popularity among young cohorts. People between 18-34 as the ones that most use the platform.
Key Highlights of the Google-YouTube Deal:
- Acquisition Price: Google acquired YouTube for $1.65 billion in 2006, making the three co-founders multi-millionaires.
- Google Video vs. YouTube: Google was trying to launch its own video service called Google Video, but it couldn’t match YouTube’s success.
- Concerns of Google’s Founders: Google’s founders, Brin and Page, were concerned about YouTube’s rapid growth and its use as a video search engine.
- Backing from Silicon Valley VCs: YouTube was backed by prominent investors, including Sequoia Capital.
- Former PayPal Team: The YouTube co-founders were former PayPal team members who left to start their own venture.
- Initial Offer and Negotiations: Google initially considered an offer of $50 million for YouTube but eventually closed the deal at $1.65 billion.
- YouTube’s Value and Revenue: By 2022, YouTube generated over $29 billion in advertising revenues, making it a significant contributor to Google’s business.
- Integration Challenges: Integrating YouTube into Google was not an easy fit, and Google had to address copyright issues and transition YouTube into a successful discovery video platform.
- YouTube’s Business Model: YouTube generates revenue through advertising and subscription revenues, with its advertising network being part of Google Ads.
- Popularity and Global Reach: YouTube is one of the most popular sites globally, with over 33 billion visits in March 2023, and it attracts a significant young audience, especially those aged 18-34.
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