YouTube: The VOD Giant

Where do y'all watch movie trailers, music videos, product reviews, interviews, etc? The company that first came to your mind was YouTube. YouTube is a video-on-demand (VOD) platform that Google acquired in December 2006 for $1.65 billion. Today, YouTube has revenues of $20 billion & a $170 billion valuation, delivering Google +100x returns in under 15 years! Analysts call this the greatest acquisition ever.

YouTube was founded in 2005 by three ex-PayPal employees, who found it difficult to find videos of the 2004 Indian Ocean tsunami online. The week of YouTube's launch, Saturday Night Live ran a skit 'Lazy Sunday'. 'Lazy Sunday's' virality helped establish YouTube as an important website. By late-2005, the site was receiving 8 million views per day, & by July 2006, 65000 videos were being uploaded everyday.

When Google acquired YouTube, analysts viewed the decision with skepticism. Eric Schmidt (former CEO of Google) once said in an interview "We paid a $1 billion premium for YouTube". The acquisition of the 18-month old startup played a huge role in sending valuations in the tech sector skyrocketing.

Up until 2006, YouTube didn't have a definite monetisation plan, & mostly generated revenues through advertisements. Under Google, YouTube developed multiple revenue streams. Google realised that the only way to grow YouTube's community is by incentivising it's video uploaders. If creators make money by uploading videos, it'll prompt more creators to join YouTube, which will eventually increase traffic on the website. Google launched it's Partner Program for YouTube under a system based on AdSense. YouTube takes 45% of the revenue, & 55% goes to the uploader.

In 2014, YouTube became a 'freemium' platform by launching YouTube Premium (formerly YouTube Red), a subscription service which provides ad-free access to content, as well as access to YouTube Originals. YouTube leveraged the popularity of YouTube personalities in combination with professional producers to grow it's original programming. As of 2021, YouTube Premium has 30 million subscribers.

In 2015, YouTube launched YouTube Music to compete with Spotify, & Apple Music. The service offers ad-free playback, audio-only background playback, & downloading songs. YouTube also has YouTube Gaming (to compete with Twitch), YouTube Shorts (to compete with TikTok, & Reels), & Youtube TV, a television-style subscription service.

The future of YouTube is extremely exciting. The barriers between traditional broadcasting and online video are toppling. There are rumours that YouTube will be joining the likes of Sky, & Fox in the bidding of television rights for sports leagues. I assume, by 2025, live-sports will become one of YouTube's offerings, & it may also transform itself into a subscription video-on-demand giant, competing with Netflix. Perhaps, YouTube's biggest advantage is its fraternity, & Google can definitely monetise that.

Today, YouTube constitutes 12% of Alphabet's revenues. The YouTube Partner Program is one of the most brilliant monetisation strategies ever and created a new crop of professions: YouTubers. YouTube has had an indelible social impact. Large production companies have used YouTube to grow audiences. One example being Vevo, a joint-venture between the three major record companies to host their music videos. Google's extensive data infrastructure can also help YouTube, which now records 1 billion hours of video viewing everyday. YouTube algorithms decide which video a user is most likely to watch, which increases overall viewing time, which ultimately leads to more revenues.

Wall Street analysts believe that Google should spin-off YouTube into a separate entity, which will be worth $300 billion by 2024. YouTube goes with people on their way to school, work and also on vacation, & it is primed for the future. YouTube could definitely compete with Netflix, Amazon, Apple as well as traditional media in the coming years.