Originally written for eVent! [ep] magazine on 10/12/06.
On October 9th internet search engine giant Google (www.google.com) announced it would buy the internet video website YouTube (www.youtube.com). Previously I'd written that as with many successful websites the only real business model for YouTube is to hope a larger company buys it up. The name of the game for YouTub, as it was for photo hosting site Flickr (www.flickr.com) and social networking site MySpace (www.myspace.com) is to build up a large user base and then deliver that user base to someone else. YouTube did it successfully and Google paid $1.65 billion US for that user base.
Google is buying users with their money. They had already have a competing video service, Google Video (video.google.com), that in many ways was superior to YouTube's but had failed to catch on with the public in the same way that YouTube had. What will happen to Google's video service now that they've bought their chief rival has yet to be announced. Also unclear is how exactly any money is going to be made off the vast number of videos uploaded and watched on the site.
With costs upwards of a million dollars a month YouTube has never been able to monetize its success. Yahoo has still not managed to begin to cover the costs of running Flicrk, which it bought from Vancouver based Ludicorp, which has similiarly high operating costs because of the amount of storage and bandwidth needed to house and transmit its large library of photographs. Whether Google has the magic touch to turn YouTube into a profitable venture will have to be seen.
The chief source of revenue will come from ads placed on the site, which most likely now will be Google's own AdSense ads. YouTube has also been in the process of striking deals with traditional media companies, such as NBC. NBC which initially threatened to sue the site because clips of Saturday Night Live had been uploaded by users, now pays YouTube to host clips of its television shows. Clips and behind the scenes footage for new NBC shows like 30 Rock and Friday Night Lights have been put on the site by the broadcaster. Though financial details of the deal have not been disclosed YouTube has been active in seeking out similar partnerships with other companies. Like the deal with Google what YouTube offers is eyeballs.
How many people watch YouTube? Over 100 million video clips are watched everyday on the site and 65,000 videos are uploaded during the same amount of time. Well used it can boost a show's popularity, something Stephen Colbert knows. The host of the Colbert Report has been savvy enough to not only have the directors of some of YouTube's most watched videos on his show, but also to use YouTube for his own ends. Recently Colbert finished up his Green Screen challenge. Releasing footage of himself waving a lightsaber from Star Wars while jumping around in front of a green screen like the sort used in movie special effects, Colbert challenged his audience to edit the footage in any way they wanted. The resulting clips largely ended up on YouTube and there's over 160 entries on the site showing Colbert fighting everything from bears and the liberal media to himself.
At least for the foreseeable future YouTube will be run separately from Google and Google Video. Also for the foreseeable future it's going to lose money. At least now it can afford that since it's going to be drawing from Google's nearly bottomless pockets.