YouTube’s secret

How they make money revealed

YouTube is the most popular video sharing platform on the internet.

Pretty much everyone uses the platform to watch their favorite videos or to obtain tutorial information.

With thousands of videos uploaded every day, the cost of running the site must be quite high! So, how does YouTube make money?

The first YouTube video was uploaded on 23rd April 2005 and featured Jawed Karim, one of the founders of the site, at the San Diego zoo and since then the site has come a long way.

Before YouTube was created in 2005, people used to send text and images through email, but sharing videos on the Internet wasn’t possible.

YouTube was created by former PayPal employees Steve Chen, Chad Hurley, and Jawed Karim. Thanks to their work, video sharing became easier and more enjoyable.

All you need to do is visit the site, search for your favorite video and then just sit back and enjoy. What’s more, you can even create your own profile by registering with the site for free and once you have a profile, you can log in and upload your own videos!

To watch videos on the website, you need to have the Adobe Flash Player plug-in installed in your browser.

Let’s first understand the business dynamics of YouTube, including the cost of hosting and distributing videos, before we learn how YouTube makes money.If we consider the expenses of any website, the first thing that comes to our mind is sourcing the content.

Most of the content on YouTube is free as the videos are uploaded by people who are members of the site. Interestingly, around 75% of the content comes from outside the United States!

However, there are other charges that include hosting charges, uploading charges, charges for transcoding and most importantly, charges for distributing.

The estimated price that YouTube pays per month for bandwidth is around 30 million U.S. dollars, which is a pretty big amount!

How does YouTube Earn Money?

In November 2006, Google Inc. bought YouTube for a whopping $1.65 billion and now the site functions as a subsidiary of the Internet giant.

The fact that Google Inc. showed interest in acquiring YouTube means that YouTube was indeed a money-spinning venture that made huge profits.

So, where does all this money come from, and what makes YouTube such a successful business venture financially? Read on to know.

Revenue from Advertisements

This is, by far, the biggest source of revenue for any site and YouTube is no exception. If you type something in the search box and click enter, you are directed to a page that displays the search results that match the words you had typed in. If you look on the right side of this page, you’ll find several links of websites featured under a section named ‘Google Ads’. These are nothing but Google AdSense advertisements and every time someone clicks on these links, YouTube earns revenue.

Another way to earn money through advertisements is to place ad clips before or after a video.

Premium advertising on YouTube is a rare occurrence.

Even though millions of videos are viewed by people who visit the site, you can see that hardly any of the videos have ads in them. Only 3-4% of the total videos on the site have ads in them while the rest do not.

To calculate the estimated revenue, compare the advertising income with the hosting cost for each video. If the advertising income is higher, the website will make significant profits.

Now, advertisements are again not all the same and fall under two major categories. Advertisement clips that play before or after a video clip are called macro-advertising.

On the other hand, micro-advertising includes Google Ads that are not a part of the video, but appear on the web page. On YouTube, you would rarely find macro-advertising, but mostly you would find Google Ads.

The revenue of a site depends on the amount of ads shown alongside the content.

YouTube is very popular and has millions of users. It earns good revenue even though it has low advertising rates for small ads.

Revenue From Sponsored Partnerships

YouTube also earns revenue from sponsored partnerships with media companies like MGM and CBS. These partnerships allow these companies to upload full-length movies and TV series episodes on the site.

This began in 2008, after competitor sites such as Hulu had formed similar partnerships with media firms including Disney and Fox. In 2009, this feature was launched for users in the U.K. as well, after the site formed tie-ups with media companies in the country.

At present, viewers in the U.S. Can rent full-length movies from YouTube, and the site is planning to soon launch this worldwide.

Recently, in March 2010, the Indian Premier League matches were broadcast live worldwide on YouTube. This was the first time a major sporting event was featured live online.

Revenue From Bidding Keywords

If you know the basics of search engine optimization, you must be aware of what keywords are. They are words or a group of words that most people search for.

Now, if you begin typing something in Google’s search box, you’d see that there are a few suggestions that appear. In the same way, you can find suggestions appearing below the search box in YouTube as well.

The phrases that appear are termed as keywords. Now, say the name of the video you have uploaded on the site is “How to Jump Around the House” and you wish more and more people to come and “see” you’re jumping around.

So, what is the best thing to do?

If you use your title as a suggestion when someone types ‘how to’, it greatly increases the likelihood of people visiting your page, right?

For this, all you need to do is bid for keywords.

If your title appears as a suggestion when someone types ‘how to’, then more people will likely visit your page.

More people bidding for their video titles to appear in suggested keywords on YouTube means more revenue for YouTube.

These were a few ways in which YouTube makes money. At present, new strategies are being formulated to increase the revenue earned by the site.

And going by the huge traffic that the site fetches every minute, this shouldn’t be that difficult. 


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