YouTube Business Model – How does YouTube Make Money
YouTube’s origins were rooted in a very different foundation to the one that upholds it today. It was started as a dating website in February 2005 by Steve Chen, Chad Hurley and Jawed Karim. Over the years, however, it has evolved into a site exclusively for video sharing. Today, YouTube is the world’s most popular and most populous video sharing website and the second most used search engine on the internet. Over a billion video consumption hours are clocked daily on the platform and over 400 hours of content are added to it every minute of everyday. YouTube’s most striking facet is that it speaks to a global audience, being available in 76 languages. It is used by individuals, celebrities and brands big and small, and boasts a universal appeal. But as much as it has done for the global video community, few people know the answer to this pertinent question: how does YouTube make money?
The answer? Intelligently.
The YouTube business model is underpinned by a variety of revenue streams, which the platform cleverly integrates to form a singular proposition for users. Inspired by the YouTube model, a crop of excellent next-gen video sharing websites has emerged. Some of these have been specialised, focused on niche topics like cooking and baking. iFood.tv, for example, is a close-knit community of cooking enthusiasts who share recipes with each other. Other platforms have been more mainstream, inviting videos across an array of topics to be featured. The primary growth engine for this cult phenomenon has been the rise of turnkey frameworks in the market. StreamTube, a video sharing technology, has gestated thousands of video sharing brands, world over. The deftly developed technology offers technology newbies a superior framework at a fraction of traditional launch costs.
Before we dive into how YouTube makes money, let’s understand how YouTube really works.
An Insight Into YouTube
You’re probably already familiar with the mechanics of YouTube, but if you aren’t, here’s a brief run-through of what the platform does and how it serves users. YouTube, a Google-owned entity, is a video sharing platform that enables users to upload videos, create their own channels, follow fellow users and share and comment on content. It also allows established content creators to monetise their content via advertising. Video consumption for users is free. Aside from its video framework, YouTube has also branched out into music and games, providing exclusive exclusive platforms for each.
The YouTube Business Model
Interestingly, YouTube doesn’t spin its margins from viewers; access to its content is free of cost. Its business model stems from its massive base of 30 million daily visitors. The fact that the platform garners so many eyeballs has presented several monetisation opportunities to YouTube. Most of these are some form of advertising, where advertisers, content creators and YouTube gain predetermined shares of revenue. Recently, YouTube has launched its first subscription model, a product called YouTube Red. The premium platform charges members a reasonable membership fee for access to exclusive content and privileges. The YouTube business model has proved massively successful and has been emulated by several smaller brands across the globe. StreamTube, for example has inbuilt monetisation tools that allow entrepreneurs to select a monetisation strategy that suits them.
Route 1. Advertising and Sponsorship’s
Sponsored Videos
YouTube is an ideal platform for advertisers, because its reach is vast and broad. Sponsored videos in particular, can be crafted as native advertisements, slipping into the content ecosystem on YouTube seamlessly. Unlike advertisements, sponsored videos can garner individual interest from users if created well. For sponsored videos, an advertiser pays YouTube depending on how many views the sponsored video has received.
Pre-Roll and Mid-Roll Advertisements
You’re probably well acquainted with the annoying pre-roll ads that play before a video on YouTube. These are embedded advertisements that have been placed by advertisers. The great thing about ads is that they can be effectively targeted at specific user groups based on preset criteria. Ads come in various formats; pre-roll and mid-roll are two of the most popular. Pre-roll implies an ad being placed before the start of a video and mid-roll indicates a video being interrupted by an ad in the middle. Advertisements are usually charged to an advertiser based on how many views an ad receives. A certain percentage of this cost is paid as remuneration to the content creator whose video the ad was placed in. You may have noticed a ‘Skip Ad’ option on YouTube. If a viewer does indeed skip an ad, an advertiser is not liable to pay for the view at all.
Home Page Banner Advertisements
If you’ve logged into YouTube from your desktop, you’ll know that the landing page that opens is a repository of diverse content. Research suggests that video placed on a landing page can multiply conversions up to 80%. Thus, YouTube capitalises on the value of its landing page by charging advertisers a premium for ads placed there. The banner page can accommodate content in a plethora of formats and is a useful tool for advertisers.
Route 2. YouTube Red
Taking a leaf out of Netflix’s book, YouTube has launched its own premium subscription service called YouTube Red which offers users an elevated entertainment experience on YouTube, YouTube Music and YouTube Gaming. YouTube Red, priced at $10 per month, provides the following benefits:
- Ad-free experience
- Access to exclusive, locked content
- Offline consumption
- Screensaver play
- Audio mode
- Free access to Google Play Music
Route 3. Monetised Content
YouTube has collaborated with some of its prime content creators to created gated viewership for select channels. Those content owners who own coveted content on the platform now have the option of charging a subscription rental for their channel. YouTube and content creators are thought to share subscription revenue on a 45:55 basis.
The YouTube business model rests on volumes. If you’re new in the video sharing space, you may not have a formidable user base to support your advertiser universe. Until you’ve built up a sizeable set of users, employ alternative monetisation tools. Leverage sponsored videos, subscription services and premium content layers. Consider giving a free trial of your platform to lure users, and be sure to source excellent content that will keep your viewers coming back for more.