How does YouTube Make Money and YouTube Business Model

How does YouTube Make Money and YouTube Business Model – Unicorn Economy

 How does YouTube Make Money
How does YouTube Make Money

About YouTube, Founders, Funders and Facts

Happy Diwali Everyone!

Who doesn’t know about youtube, well most of us do – atleast everyone knows what it does and how it works.  For the geek here it is –

YouTube is a video-sharing website and the second most popular search engine (basically what ever people used to google now they youtube).  It’s headquartered in San Bruno, California, United States. The service was created by three PayPal mafia in February 2005.  In November 2006, it was bought by Google for US$1.65 billion.  The sole reason that Google bought them over was Google’s own video service was in shambles and was about to bite the dust and YouTube’s traffic was through the roof!  It is now one of Alphabet’s subsidiaries.  It allows users to upload, view, rate, share, and comment on videos.  Uploaded Content includes video clips, TV show clips, music videos, audio recordings, movie trailers, and other content such as video blogging, short original videos, and educational videos.

YouTube Founders : YouTube was founded by Chad Hurley, Steve Chen, and Jawed Karim.  Chad and Steve currently are founders of MixBit.

YouTube Funding : Sequoia Backed, $11.5 million then $3.5 million.  Sequoia made a killing after youtube was acquired by Google.

Let’s move on to the elephant in the room, how does youtube make money by understanding youtube business model.

How does YouTube Make Money

How does YouTube Make Money pops into many youtubers mind while watching a video or uploading one.  How on earth youtube makes money if everything from uploading to watching to storing to sharing is free?

Well, as I always say, If you don’t pay for the product, you are the product.

To note here is an important point that only 30% of the videos on YouTube result in almost 60% of the views (an example of the 80 20 Rule).

YouTube sells your views / eyeballs in exchange for money, the more videos you view (that contain ads) the more money youtube makes.

That gets me to think – doesn’t the constant war between ad publishers and ad-blockers ensure that youtube does not make any money?  Well yes and no!

Yes because how youtube makes money is not only dependent on embedded ads within videos but things like sponsored videos and things alike.  Let’s look at individual revenue streams in detail.

How does YouTube Make Money via Sponsored Videos

How YouTube earns Money
How YouTube earns Money

The above image is the search page result image.  Remember my first line, YouTube is second largest and most used video search engine today!  Look at the staggering number of results on the top right corner, if your video can stay at the top of 10 million results (indicating high search volume) imagine the kind of reach that this can build.

This is called as SERP advertising.  Where the advertiser pays for the number of views that are recorded after clicking this ad which loads on search of a specific keyword.  This ad can be blocked by Ad- Blocker.

Thus how does youtube make money is too much dependent on which type of device is being used to view the video and is there an alternative to block all ads.

How does YouTube Make Money via Landing Page Placements

How YouTube makes Money
How YouTube makes Money

This is the landing page of YouTube when you open YouTube first and without logging in.

This is the highest viewed property on YouTube.

Advertisers here pay a combination of views + clicks.  This property contributes most to the how does youtube make money dilemma!

How YouTube Makes Money

How YouTube Makes Money
How YouTube Makes Money

How YouTube makes Money via embedded ads is a little frustrating for the users – especially those who view youtube videos on mobile (no ad blocker there).

Business Model of YouTube
Business Model of YouTube

This yellow progress bar indicates the length of the video ad being pre-played before the video.  You can not skip this ad until its played in full.

Some ads can be skipped after 5 seconds of play.

Here the business model of youtube is to collect advertising fee from the advertisers and pay a cut to the content creator on whose video the ads are playing – thus the higher number of views your video has the more money you will make.

Business Model Canvas YouTube
Business Model Canvas YouTube

The small yellow dots in between the video are small adverts being played for 5-6 seconds.

The advantage for Google here is that the user uploaded content only costs them in terms of hosting environment and maintenance. The thought here is that the cost of maintaining hosting for YouTube would go down as evolves and more video content would be available for monetizing with ads and fair market pricing (view dependent).  YouTube overlays are the tech behind embedding these ads in between videos and user can just skip the ad without watching the first 5 seconds.  Plus the ads are populated in the videos at different points of the viewing rather than just one pre-play ad, and they re-follow the embedded video around the web (in other websites where these videos are embedded).

This is one of the worst business model examples that I can think of where the entire cost of maintaining the infrastructure to keep stuff free for consumers is twice the revenue that eye-balls generate.

Again Here the business model of youtube is to collect advertising fee from the advertisers and pay a cut to the content creator on whose video the ads are playing – thus the higher number of views and longer views (to cover all ad spots) your video has the more money you will make.

YouTube Business Model

YouTube Business Model
YouTube Business Model

YouTube Business Model primarily revolves around advertising, but that may not always be the case because of the constant war between ad-pushers and ad-blockers.

Thus Google is constantly trying to evolve its YouTube business model around non-ad-publisher-dependent revenue source.

YouTube Business Model via different Revenue Lines

Google has a list of potential different revenue streams for YouTube business model.  These are listed down as follows:

  1. YouTube Red : This YouTube business model is a monthly subscription based pay-per-month for viewing an ad-free version of YouTube across devices with additional exclusive content that non-paying users can’t access. This requires YouTube to invest in some original content (NetFlix Business Model Competition).
  2. There are lot of YouTubers that make loads of money by producing videos that people are watching that have a “buyers intent“.  These keywords are like XYZ REVIEW, XYZ UNBOXING, HOW-TO XYZ etc.  These videos have in-movie placement of third party products that the youtube video producer is promoting and is getting paid for in advance by the product owning company. For e.g. I am a YouTube reviewer which reviews smart-phones, GAMSUNG approaches me and asks me to review its latest phone in my video and in turn pays me – YouTube business model has a fundamental flaw since GOOGLE DOES NOT GET A SINGLE RUPEE out of IT.   Google wants to make this right now and wants to crack down on the in-video sponsorship. The ad-teams from youtube is hoping to force brands to buy ad inventory from the existing ad channels rather than work out a side-deal directly with the YouTube stars with immense followings.   This is damn risky a move that could push some content creating stars to rival platforms (like Twitters Vimeo or SnapChat Stories).
  3. Google is trying to get people to watch videos directly on YouTube (so that they can use the real estate on the web to display more ads).  As of now almost all viewers are directly watching embedded videos on other sites (which may or may not have google monetization) or just visiting in for the one odd video without clicking around and browsing further.  To combat this – The youtube business model is tweaked to give out higher incentives to content creators if the video is viewed on youtube home rather than their own websites.

How does YouTube Make Money Disclaimer : All views about YouTube Business Model are of the author’s himself. No outside influence.  Please use caution while using.

Leave a Comment

Your email address will not be published. Required fields are marked *