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yields profit

History of YouTube

This article covers the history of YouTube.

YouTube was founded by Chad Hurley, Steve Chen and Jawed Karim, who were all early employees of PayPal. Prior to PayPal, Hurley studied design at Indiana University of Pennsylvania. Chen and Karim studied computer science together at the University of Illinois at Urbana-Champaign. The domain name "YouTube.com" was activated on February 15, 2005, and the website was developed over the subsequent months. The creators offered the public a preview of the site in May 2005, six months before YouTube made its official debut.

Like many technology startups, YouTube was started as an angel-funded enterprise from a makeshift office in a garage. In November 2005, venture firm Sequoia Capital invested an initial $3.5 million; additionally, Roelof Botha, partner of the firm and former CFO of PayPal, joined the YouTube board of directors. In April 2006, Sequoia put an additional $8 million into the company, which had experienced huge popular growth within its first few months.

During the summer of 2006, YouTube was one of the fastest growing websites on the Web, and was ranked the 5th most popular website on Alexa, far out pacing even MySpace's rate of growth. According to a July 16 2006 survey, 100 million video clips are viewed daily on YouTube, with an additional 65,000 new videos uploaded every 24 hours. The website averages nearly 20 million visitors per month, according to Nielsen/NetRatings, where around 44% are female, 56% male, and the 12- to 17-year-old age group is dominant. YouTube's pre-eminence in the online video market is substantial. According to the website Hitwise.com, YouTube commands up to 64% of the UK online video market.

On October 9, 2006, it was announced that the company would be purchased by Google for US$1.65 billion in stock. The purchase agreement between Google and YouTube came after YouTube presented three agreements with media companies in an attempt to escape the threat of copyright-infringement lawsuits. YouTube will continue operating independently, with its co-founders and 67 employees working within the company. The deal to acquire YouTube closed on November 13, and was, at the time, Google's second largest acquisition.

Media recognition

Within a relatively short time, YouTube has experienced much well-publicized growth, fueled primarily by online word-of-mouth. The website received an early surge of publicity when it hosted the popular Saturday Night Live short Lazy Sunday. However, YouTube's official policy prohibits submission of copyrighted material, and NBC Universal, owners of SNL, soon decided to take action.

In February 2006, NBC asked for the removal of some of its copyrighted content from YouTube, including Lazy Sunday and 2006 Olympics clips. The following month, in an attempt to strengthen its policy against copyright infringement, YouTube set a 10-minute maximum limit on video runtime. Although earlier users were grandfathered in, new members cannot upload videos over 10 minutes long. The restriction can easily be circumvented by uploaders, who simply split the original video into smaller segments, each under the '10-minute' maximum.

Though YouTube complied with NBC's demands, the incident made the news, garnering the website even more publicity. As YouTube continued growing in popularity, NBC began to realize the website's possibilities, and announced, in June 2006, a strategic partnership with YouTube. Under the deal, an official NBC channel was set up on YouTube, showcasing promotional clips for the series The Office. YouTube will also promote NBC videos on its site.

CBS, which had also asked YouTube to remove several of its clips, followed NBC's example in July 2006. In a statement indicative of how traditional media's perception of YouTube (and similar sites) has changed, Sean McManus, president of CBS News and Sports noted:

Our inclination now is, the more exposure we get from clips like that, the better it is for CBS News and the CBS television network, so in retrospect we probably should have embraced the exposure, and embraced the attention it was bringing CBS, instead of being parochial and saying ‘let’s pull it down.’

In August 2006, YouTube announced its goal, within 18 months, to offer every music video ever made, while remaining free of charge. Warner Music Group and EMI have confirmed that they are among the companies in talks to implement the plan. In September 2006, Warner Music and YouTube signed a deal, in which the website will be allowed to host every Warner music video while sharing a portion of the advertisement income. Moreover, user-created videos on YouTube will be allowed to use Warner songs in their soundtracks.

On October 9, 2006, CBS, Universal Music Group, and Sony BMG Music Entertainment announced an agreement to provide content to YouTube.

On January 29, 2007, YouTube co-founder Chad Hurley announced that the online video service will pay its active user-contributors (who should actually be the true copyright owners) a portion of the website's advertising revenue. However, at the World Economic Forum, Hurley did not mention an exact amount of money that YouTube will pay the contributors.

Press coverage

Time featured a YouTube screen with a foil mirror as its annual 'Person of the Year', citing user-created media such as YouTube's, and featuring the site's originators along with several content creators. The Wall Street Journal and New York Times have also reviewed posted content on YouTube, and its effects upon corporate communications and recruitment in 2006. PC World Magazine named YouTube the 9th of the Top 10 Best Products of 2006. In 2007, both Sports Illustrated and Dime Magazine featured stellar reviews of a basketball highlight video entitled, The Ultimate Pistol Pete Maravich MIX. Because of its acquisition by Google, it is sometimes referred to as "GooTube."

Economy of YouTube

Before being purchased by Google, YouTube declared that its business model was advertisement-based, making 15 million dollars per month. Some industry commentators have speculated that YouTube's running costs — specifically the bandwidth required — may be as high as 5 to 6 million USD per month, thereby fueling criticisms that the company, like many Internet startups, did not have a viably implemented business model. Advertisements were launched on the site beginning in March 2006. In April, YouTube started using Google AdSense. YouTube subsequently stopped using AdSense but has resumed in local regions.
Advertising is YouTube's central mechanism for gaining revenue. This issue has also been taken up in scientific analysis. Don Tapscott and Anthony D. Williams argue in their book Wikinomics that YouTube is an example for an economy that is based on mass collaboration and makes use of the Internet. "Whether your business is closer to Boeing or P&G, or more like YouTube or flickr, there are vast pools of external talent that you can tap with the right approach. Companies that adopt these models can drive important changes in their industries and rewrite the rules of competition" "new business models for open content will not come from traditional media establishments, but from companies such as Google, Yahoo, and YouTube. This new generation of companies is not burned by the legacies that inhibit the publishing incumbents, so they can be much more agile in responding to customer demands. More important, they understand that you don't need to control the quantity and destiny of bits if they can provide compelling venues in which people build communities around sharing and remixing content. Free content is just the lure on which they layer revenue from advertising and premium services" .
Tapscott and Williams argue that it is important for new media companies to find ways of how to make profit with the help of peer-produced content. The new Internet economy that they term Wikinomics would be based on the principles of openness, peering, sharing, and acting globally. Companies could make use of these principles in order to gain profit with the help of Web 2.0 applications: “Companies can design and assemble products with their customers, and in some cases customers can do the majority of the value creation” . Tapscott and Williams argue that the outcome will be an economic democracy.
There are other views in the scientific debate that agree with Tapscott and Williams that value creation is increasingly based on harnessing open source/content, networking, sharing, and peering, but that argue that the result is not an economic democracy, but a subtle form and deepening of exploitation, in which labour costs are reduced by Internet-based global outsourcing.
The second view is e.g. taken by Christian Fuchs in his book "Internet and Society". He argues that YouTube is an example of a business model that is based on combining the gift with the commodity. The first is free, the second yields profit. The novel aspect of this business strategy is that it combines what seems at first to be different, the gift and the commodity. YouTube would give free access to its users, the more users, the more profit it can potentially make because it can in principle increase advertisement rates and will gain further interest of advertisers. YouTube would sell its audience that it gains by free access to its advertising customers.
"Commodified Internet spaces are always profit oriented, but the goods they provide are not necessarily exchange value and market oriented; in some cases (such as Google, Yahoo, MySpace, YouTube, Netscape), free goods or platforms are provided as gifts in order to drive up the number of users so that high advertisement rates can be charged in order to achieve profit."

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