YouTube and User-Generated Content Platforms

On April 23, 2005, “Me at the zoo,” a video praising the coolness of the long trunks of elephants in the San Diego zoo, was uploaded in YouTube. It has been seen more than

53 million times and it has more than 1 million likes. The 18-second video was the first video uploaded in YouTube, as it was made available by the three founders of the platform: CEO Chad Hurley (son-in-law of Netscape founder James H. Clark), CTO Steve Chen, and Jawed Karim, who remained as an advisor while studying computer science at Stanford University. All were aged below 30 and had met as employees working for PayPal. With 888 million internet users worldwide at the time, and broadband becoming increasingly common in most developed countries, the world was ready for a video platform.

YouTube was certainly not the only startup with a proposition around audiovisual content. YouTube allowed individuals to upload, share, and see videos. YouTube solved the technical challenge of making it simple to upload and browse videos with different technical formats. Other start-ups were providing similar services, but they were not as successful as YouTube’s.

What made YouTube successful was the community around the videos: making comments, expressing likes and dislikes, inviting users to share the video links with friends, adding the videos to their websites, etc. Building on their expertise from PayPal of how to build communities, YouTube founders made the platform go viral.

User-generated content was the original target of YouTube. The pitch for investors was “to become the primary outlet of user-generated content on the internet, and to allow anyone to upload, share and browse content.” The first videos were just personal recordings that would have only been of interest to a very small audience (such as baby videos for grandparents).

The first video to go viral on YouTube and reach more than a million views was not generated by a user, but “Lazy Sunday,” a hip hop video by professional comedians working for NBC’s Saturday Night Live in December 2005 and then uploaded on YouTube. NBC filed a suit for the breach of intellectual property rights against YouTube for airing the video.

From the early days, YouTube had the intention of combining user-generated videos and more professional videos and to monetize both thanks to advertising. YouTube was presented to venture capital firms as a platform curating a sophisticated multi-sided market formed by content producers, viewers (eyeballs), and advertisers. The more eyeballs, the higher the revenue from advertisers, and the higher the fees paid to content producers, triggering the well-known virtuous cycle derived from indirect network effects.

This was the successful pitch made to Sequoia Capital, led by former PayPal’s CFO Roelof Botha, who invested $3.5 million in YouTube. Funding was necessary, as YouTube was a centralized network. Videos were hosted on YouTube’s servers, which required significant bandwidth to manage an increasing volume of data. By December of the same year, eight months after launch, eight million videos were being viewed per day; this number reached 100 million by July 2006.

Google acquired YouTube in November 2006 for $1.65 billion. YouTube was the perfect match for the search platform. YouTube was attracting large audiences and Google had already developed a successful business model to monetize the attention of such a large and growing audience. YouTube was also a natural addition to Google’s business model. YouTube is a platform that curates a sophisticated multi-sided market formed by content producers, viewers, and advertisers.

As the medium is the message, YouTube, a new medium, created a new message on its own. Individuals developed new, creative, and unexpected ways to display themselves and their interests. As advertising revenue started to trickle down to content producers, individuals were empowered to professionalize their videos and make a living - in a few cases, a very comfortable living - out of this revenue stream. PewDiePie is the online name of Swedish Felix Kjellberg, the most popular YouTuber since 2013, who has more than 100 million subscribers to his YouTube channel of videogames commentary, jokes, and displays of his personality. It has been estimated that PewDiePie makes $8 million a month.1

YouTube has always combined user-generated content with more professional and traditional videos. Remember that the first video to reach 1 million views in YouTube was “Lazy Sunday,” an NBC production. Music videos continue to be among the leading content in YouTube. Over time, YouTube has expanded into a paid video-streaming service. After the success of streaming services, like Netflix and Hulu, YouTube has expanded from being a non-transactional platform funded by advertising, to include also paid services, under the trademark YouTube Premium. This service allows access to regular videos without advertising, but also to original content developed for the platform.

YouTube’s figures are impressive. On the content side, there are more than 2 billion videos on display. On the eyeballs side, YouTube reached 2 billion monthly users in 2019. On the advertisers’ side, it has been estimated that YouTube revenue in 2019 was around $15 billion. Google has built a multi-platform business, as it provides a wide range of services that attract multibillion audiences. Advertising in Google sites, including YouTube, generated $134 billion in revenue in 2019.

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