How does YouTube make money?

I just realized that their site (much like Google) is devoid of ads except one banner at the top of the video pages and one on the side of other pages. No WAY they’re making money off advertising.

Did they get funded by a VC for megabucks (no way you could run such a bandwidth- and space-intensive site without tons of capital to start with), with the business plan of:

  1. Set up free video serving site
  2. Get the rights to terabytes of video for free
  3. Profit!!

Not only do they not advertise on their own site, they let all of their videos be posted willy-nilly around the 'net for free with nothing but a little watermark.

I think I’ve read (in Wired) that YouTube sells clips to VH1 who has a clip show. Or VH1 has a clip show based on YouTube videos (not sure, don’t have VH1).

But there’s something I’m missing here, bigtime.

You’re not missing much. YouTube was nowhere near turning a profit when Google bought them out.

This guy seems to think that they sell ads on the youtube page, for a fair amount of money.

http://www.watchmojo.com/web/blog/?p=500

Yeah but I figure you’ve got to have funding to even consider getting the kind of server setup they must have. And to get funding you’ve got to have a plan that says to the financer “yes this will yeild me money.” What is that plan?

World dominance?

Very interesting link, thanks.

One thing, though - the first part of the article talks about the revenue YouTube makes on it’s homepage ads alone. That article was written 18 days ago, and I see no ads on the YouTube homepage. Have they been removed recently?

I also don’t see any “big player” ads on the site. I see “big spam” ads though, the same kind of crap that’s on everyone else’s sites (meaning not ads that were specially purchased and placed by well-known businesses).

**gazpacho’s ** article, though, pretty much says that until YouTube goes public we’ll never know how they make their money.

And why did Google pay a trillion dollars to buy them? Especially when Google had just gone to all the trouble and expense to set up “Google Video”.

If that were the case, the late 90s would have been a very different time. See here for an analysis of the deal.

Mysteriously Google seems to have found a way of making serious money from online advertising.

The value of advertising is based on the size of its audience, as Ultrafilter’s link to the Economist suggests, they are really just buying circulation.

Even then, they are not really ‘buying’ anything, it is a stock only deal, so provided the Google share price does not slide, then the only thing that pre-existing Google shareholders are losing is percentage control of the company.

The side effect is that it generated media hype which is rather handy for both operations.

This ‘takeover’ looks to me like one thumping great advertising (or PR) push.

My guess is that they’ll simply replace YouTube’s back end and technology with stuff that they already have and channel existing advertising onto their new ‘billboard’.

The major benefit is that it does not look predatory.

Qute smart.

IIRC, Google shares went up $33 or $4 billion on the report of the news, so they actually made money by buying Youtube.

Maybe I can use this thread to get an answer to a question that has puzzled me for a while. How much of the current economy is based on the value of advertising revenues? Nearly all internet earning models are based on advertising revenues; TV, magazines, newspapers and radio all live off advertising revenue. Yet advertising makes no contribution at all to the economy, it is just a bunch of shills touting one product over another. Advertising produces nothing, improves nothing, it only exists to support itself. It is kind of like Milo Minderbinder’s war in Catch 22, all the combatants make money and it doesn’t matter who wins.

VH1 has or had a show called “Web Junk” that consisted of showing IIRC 20 video clips per half hour, gleaned from “the internet.” I don’t remember the host ever specifically saying that the clips came from YouTube or noticed anyhing in the show indicating YouTube as the primary source but it certainly showed videos that had been posted to YouTube. I think the show’s off the air now.

Talk Soup and the Chelsea Handler Show both run internet clips. The TS host identifies some of the clips as coming from YouTube but Handler does not. haven’t looked closely at the credits to see if YouTube is noted.

Total worldwide ad spending for 2005 was $570 billion, of which $275 billion was in the U.S. Internet ad spending is around $10 billion, so it’s a tiny fraction of the total.

The U.S. GDP is over $13,500 billion so advertising is about 2% of the total. And what advertising does is drive business to companies who sell things, which is a considerably higher percentage of the GDP.

People can argue about alternate worlds in which advertising doesn’t exist and what that would do to sales and sellers, but your description of advertising in our real world is nonsense from beginning to end.

You may never click on the ads, I never click on the ads, but somebody is clicking on them: the major advertising companies register millions of ad clicks each day. Each one of those clicks earns them a few cents. Millions of clicks a day paying a few cents each adds up to serious money.

It’s also worth noting that YouTube is a very small company, people-wise.

I recall seeing something in the coverage of Google’s acquisition that YouTube has something like 60 or 70 employees. I thought that was striking, but on reflection, it makes sense: the company “manufactures” basically one “product,” i.e. a highly efficient online video storage and delivery system. That’s it; that’s all they do. So as far as technical staff goes, you need a few specialist developers, some testers, and a core of engineers and sysadmins to manage a shitload of storage and bandwidth. They you add some internal administration, finance, HR, facilities, desktop support; plus the marketing and sales types to generate and administer ad revenue; and you have yourself a pretty streamlined company.

I found this very illuminating; I’ve been in the technology industry for a number of years, including a lot of time in HR, and the biggest expense one of these companies always has to deal with is the human resource. Developers, engineers, etc, are expensive, and YouTube has an organization model wherein that expense is drastically minimized. 70 people, and an average annual salary, say, of 80K (might be skewed further upward by the specialists), that’s, what, basically five-six million in wages per year? That’s nothing in this industry. The highly diversified technology company where I now work burns up way more than five million in wages every pay period.

So, yes, the heaps of bandwidth and storage they’re going through will be expensive, but deduct the money you’re not paying for a big staff, and the model starts to make more sense.