The business model of YouTube

  • Business Model Shifts

Next week’s episode

We all have fond memories of watching our favorite show on television, at the same time we all know how annoying it was to have to wait an entire week for the next episode. Television studios need a lot of time to film and produce these shows. Rating also need to be kept as consistent as possible to remain attractive to advertisers. Scheduled television was and still is littered with adverts which interrupt the sought after immersive viewing experience. A limitless supply of high-quality content that could be accessed by anyone at any time seemed like an impossible dream.

 

Television: a pipeline business model controlling how we consume content

Business Model Canvas Television

The Internet should bring people together

After being flushed with cash after eBay’s acquisition of PayPal, Jawed Karim, Chad Hurley and Steve Chen decided to get to work on solving a problem they faced while using the internet. They wanted to set-up a website that would alleviate the clunky video-sharing solutions that were available on the market at the time. They also noticed that the internet was being used as a pipeline of curated content. Businesses and advertisers controlled everything that users could consume online.

The trio was heavily inspired by HotOrNot, an online dating service that got users to upload videos and pictures of themselves. Up to this point there was no other website on the internet that enabled users to upload content for the public to view and interact with. This concept was loved by users. Consumers wanted to not only to watch the content they wanted to contribute to it.

On Valentine’s day 2005, the trio sat down and created YouTube. YouTube made user generated content a core part of its service. Both companies and individuals were given a tool with which they could broadcast themselves to the world.

 

YouTube: A platform business model bringing creators and viewers together

Business Model Canvas Youtube

 

Content creators were given a platform to display their high-quality videos and viewers were given a seemingly limitless supply of entertainment. The two parties were not only connected with each other, but they could interact with one another. Allowing creators to produce content that users requested. A whole new level of power was bestowed upon both parties. Viewers could choose exactly what they wanted to watch, when they wanted to watch it. The world of multimedia entertainment would never be the same again.

 

New ways to engage with consumers

With over 2 billion active monthly users and 79% of internet users saying they have a YouTube account; it is safe to say that the video streaming platform has reached the heights of success. This success didn’t go unnoticed. Google swooped in and purchased the website in 2006 to help build the search engine’s online advertising empire. As viewer appetite for content led them to online platforms, advertisers followed. Not only did YouTube revolutionize the way we consume entertainment, it also changed the way advertisers targeted viewers. The age for digital marketing came into full swing.

 

What to watch or create next is now up to us

The whole concept of media consumption has become very personal. Consumers demand relevant content and they want this content all the time. Everyday there are new channels created on YouTube. People want a shot at internet stardom, while viewers welcome new sources of entertainment with open arms.

Most parents do not know that the 21-year-old “YouTuber” that their kids are watching play video games all day, is actually bringing home a seven-figure salary. Not everyone can reach the heights of success as entertainment is still a very competitive industry, but through this peer-based sharing everybody has a shot to create a following.

Every video posted by a content creator on the platform is judged by a jury of their peers. Advertisers do not decide which content is the most viewed, it is the everyday person that decides. It is this user-centric system that harnesses the innate power of human creativity and imagination that continues to build YouTube into a household name.

 

What can we learn from this?

YouTube is a perfect example of the “platform shift”, bringing parties together that would never have met. The company has done this by creating a brand new customer segment, “YouTubers”. Most YouTubers are not content creators that decided to adopt an online channel, they are everyday people. Once they were given the opportunity to unleash their creativity, they left their old lives behind.

YouTube leveraged these content creators to create a self-sufficient supply of resources. Automating as much of your business as you can, as YouTube has done, is one of the key elements of exponential growth.

Acting as a bridge for the exchange of products and services between parties is the beginning of a strong core business model. Being able to do this more effectively that any of your competitors will solidify your position in the market. YouTube did this and now it is the first user-generated video streaming service that comes to mind.

In these difficult times, it is utilizing the power of digital technology to compliment or even replace your core business model that will help business thrive. Google used YouTube to revolutionize the advertising industry. Want to learn how you can do the same? We will be releasing weekly blog posts with content from our upcoming book. You can also reach out to us directly.

 

This case is part of our upcoming book Business Model Shifts.

 

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