The YouTube Economy

A critical Internet ecology analysis of the transformative effects of YouTube

The YouTube Economy
Image: Public Domain Pictures (CC0 License) Modified by: Tom Larcher

It all started as a bit of dinner party banter. From humble origins as a social video media sharing platform, YouTube has grown monumentally to become what can only be described as a cornerstone of today’s Internet.

My critical analysis aims to touch upon several transformations witnessed in the economic, political, social and cultural realms, as well as identify evidence of these changes.

Before I get underway, I shall endeavour to provide an overview of just how YouTube came to be, after which I’ll cover who owns YouTube today, and how they make their money. Wrapping up the second half of my critical analysis, I shall share a detailed account of how YouTube has resulted in widespread economic, political, social, and cultural transformations in society, whilst highlighting the platform’s place in today’s Internet ecology.


YouTube Growth
Image: Mohamed Hassan (CC0 License)

 

Incredible Growth

It was early 2005 when three ex-Paypal employees started to get serious about their idea. The trio divvied out roles based on their respective strengths; Chad Hurley took to the helm as the company’s CEO, Steve Chen assumed a role as CTO, whilst Jawed Karim served the new company as an adviser whilst pursuing other aspects of his life.

By the middle of that year, the budding entrepreneurs had succeeded in uploading the platform’s first video, and shortly thereafter, the first incarnation of YouTube was released to the public, in the form of an open beta. The end of 2005 marked the platform’s graduation from open beta with an official launch on 15th December 2005.

Throughout 2006, YouTube secured several lucrative deals (such as theirs with NBC in June 2006) that provided a springboard for the platform’s eventual sale to Google in October 2006 for $1.65 billion USD.

GooTube
GooTube – Image: John Wilkerson (Some Rights Reserved) (CC BY-NC-SA 2.0)

The decade that followed saw YouTube reach milestone after milestone, rolling out in-video ads in 2007, annotations in 2008, and HD video by the start of 2009. Aside from the evolutionary developments of the platform, YouTube released various new offerings built upon the core platform. Some of these included YouTube Rentals in 2010, YouTube Live Streaming (public) in 2013, and YouTube Red in 2015.

YouTube Timeline
YouTube Timeline. (Source) Infographic modified/adapted by: Tom Larcher (Click to view full-size image!)

YouTube’s website has undergone countless iterations over the course of its existence, with arguably its most major redesign occurring in December 2011. The following Imgur post does a great job of capturing a snapshot of the majority of the YouTube website’s iterations;

The Evolution of the YouTube Layout

YouTube, Today

To this day, Google (Alphabet) continues to own YouTube. The company itself is now reportedly turning over gross annual revenue exceeding $10 billion USB per annum.

 

How Does YouTube Make Its Money?

How does YouTube make its money? Great question!

YouTube’s business model is rather unique. The company relies on a myriad of revenue streams to ensure that the costs of running the platform are offset. The general categories that this revenue falls under are as follows:

  • Sponsored/promoted content.
  • Advertisements.
  • Paid content.
  • Affiliate earnings.

While I won’t delve into these categories deeply, I will say that the advertising aspect of the YouTube platform is responsible for generating the bulk of platform’s revenue.

As shown earlier in this analysis – YouTube has undergone a great many design iterations, which have all served to bolster their advertising potential (since 2007 when advertising was introduced shortly after Google took the reins).

The company carefully evolves the platform in order to present advertising content to users in new and effective ways. In doing so, YouTube are able to offer tiered advertising to those looking to promote on the platform based upon the prominence and known popularity of the content their advertising beside (or on top of, in the case of on-video advertising).

 

YouTube’s Internet Ecology

Industry Positioning / Social Ecology

YouTube, at its core, serves as a social video sharing platform. While this fact isn’t very impressive by today’s standards, the mere fact that the platform pioneered this area of social interaction over the Internet sans competition allowed for YouTube to gain a foothold in the social ecology surrounding social video sharing innovation.

YouTube Partnerships

YouTube’s prolific rise to prominence has been paved by lucrative deals struck with established media giants.

Marking the first of several key partnerships landed by YouTube; a marketing and advertising partnership secured with NBC in June 2006 galvanised the company’s presence, and strengthened its position during imminent sale negotiations with Google.

Less than a year thereafter, in March 2007 YouTube struck a deal with BBC which saw it hosting a total of three channels comprised of BBC content (one channel for news and two for entertainment).

In November 2008, YouTube secured an agreement with MGM, Lions Gate Entertainment, and CBS. This trifecta enabled the involved parties to post full-length films and television episodes to YouTube, accompanied by advertisements.

A year after the aforementioned partnership, in November 2009, YouTube launched a new service offering that enabled viewers located in the UK to access approximately 4,000 full-length shows from more than 60 partners.

Competitors? You Bet!

YouTube has a laundry list of competitors vying for a chunk of their market share. These competitors can be categorised as direct and indirect competition based on their service offerings. Companies such as Vimeo offer an identical core-feature offering to YouTube, and hence are aligned as direct competition, whilst companies like Netflix are categorised as indirectly competing with YouTube due to a very different business model and service offering.

The infographic below endeavours to illustrate the ecology of YouTube’s competitors within the aforementioned categories.

YouTube Competitors
Direct / Indirect YouTube Competitors. Infographic by: Tom Larcher

The YouTube Supply Chain

YouTube sits comfortably, at the top of a hierarchy propped up by user-generated content and its Google-powered advertising platform. Forming the foundations of the platform are Users (both viewers and uploaders) and Advertisers who contribute to the majority of YouTube’s revenue. The revenue generated through advertising channels enables YouTube to invest in deals that allow for them to release original content for User consumption.

YouTube Supply Chain
YouTube Supply Chain. Infographic by: Tom Larcher

Regulating The Regulator

YouTube’s regulatory policies are comprised of a set of Community Guidelines, Reporting & Enforcement Tools, as well as various supplementary resources. The platform’s terms of service are expansive, and the onus is put on the end user to abide by these terms.

With the ability to report offensive/abusive content, YouTube has given the community the tools to become partly self-policing. Despite this form of autonomous regulation, the company itself is increasingly experiencing sanctioning from external parties.

In December 2017, the European Commission made moves to enforce the expedited removal of content that is deemed extremist from Internet platforms (YouTube inclusive). The ultimatum given by the European Commission in this case was to implement more effective content filtering or to risk regulation.

Similarly, in January 2018, YouTube’s chief business officer, Robert Kyncl spoke on matters regarding regulation of the platform’s content;

“We’re not content creators; we’re a platform that distributes the content.”

“The site’s community guidelines act as the standards which are a guide on how to behave on YouTube.”

These comments came in response to Ofcom moves to impose regulations on YouTube that mimicked that of conventional UK-based television programming.

 

Who Uses It? Who Doesn’t!

With approximately 1.9 billion active users per month (over 30 million each day!), watching 5 billion videos per day – YouTube is a staple in the daily lives of individuals worldwide.

YouTube was created as a place for users to socially share videos, though in its current incarnation, the platform is heavily used by companies and brands looking to promote goods and services.

 

Transformative Effects of YouTube

The platform has been integral in the transformation of the Internet’s social ecology, effecting economic, political, social and cultural change, internationally. The changes in these areas are, for the most part, fueled by the users generating content for the platform. An offhanded example of this could be video content that delivers a political message affecting politics in a manner that had not been possible pre-YouTube. In order to provide some insight into each of these areas, I’ll endeavour to give an overview of each in the sub-sections, below.

Economically

As discussed earlier, YouTube has managed to create a unique business model for itself. This model relies on several key aspects of the platform including, though not limited to, advertising.

The economic effects of YouTube are two-fold:

  • Users generate content which helps to shape the demand of goods and services appearing, or referred to, in their content. The effects of shaping demand in this manner is that viral content can result in a similarly aggressive uptake in the desirability of particular goods and services. Prior to YouTube, this effect was non-existent.
  • Based on user behaviours recorded by YouTube, advertisers are able to target audiences based on information collected by the platform. YouTube furthers this by charging advertisers based on the desired prominence of their advertising campaign content. The fact that YouTube is so widely used means that advertisers are all but forced to factor advertising on the platform into their average marketing budgets.

 

Political

The political ramification of YouTube are becoming more distinct each year, as the platform continues to grow. The reason for this is due in large part to the fact that political trackers are able to leverage YouTube’s video sharing functionality to distribute any political content that they desire (Gueorguieva, 2007).

Don’t follow yet? That’s fine – here’s an example. Around the middle of 2006, American politician George Allen had his prospects for presidency and most of his political career railroaded by a six-minute video posted on YouTube, where his politically incorrect comments landed him in hot water (Church, 2010).

Instance such as the one described here became more frequent in the years that followed, and soon became known in politics as “YouTube moments”. The power of the platform in shaping political opinion is evident in light of examples like these.

 

Social / Cultural

The social and cultural ramifications of YouTube are due in large part to the rise of viral video content (Manovich, 2009).

Social interaction, particularly among the youth of today, is often seen to make heavy reference to recent viral content. While it is certainly not new for individuals to connect over interactions of mutually witnessed content, such as popular music, or television programming – the emergence of video sharing has acted as a catalyst in bolstering this aspect of social interaction (Jarrett, 2010).

Whether it be YouTube’s part played in the meme phenomenon, or in shaping the political landscape, the social and cultural effects of the platform are far reaching.

 

Summary

Whether it be regarding economic, political, social or cultural change – YouTube’s transformative effects since its inception in 2005 are evident.

The platform has, and continues to play in integral part in political campaigning, the economics of marketing, and social interaction on and off the Internet.

Moving into the future, it is my opinion that the prevalence of YouTube will remain somewhat the same, whilst monetisation of the platform will continue to evolve with the ever-expanding list YouTube service offerings.

 

 

References

Gueorguieva, V. 2007. Voters, MySpace, and YouTube – The Impact of Alternative Communication Channels on the 2006 Election Cycle and Beyond. Accessed from: CiteSeerX

Davidson, J., Liebald, B., Liu, J., Nandy, P., Van Vleet, T., Gargi, U., Gupta, S., He, Y., Lambert, M., Livingston, and B., Sampath, D. 2010. The YouTube Video Recommendation System. Accessed from: UniBZ

Baluja, S., Seth, R., Sivakumar, D., Jing, Y., Yagnik, J., Kumar, S., Ravichandran, D., and Aly, M. 2008. Video suggestion and discovery for youtube: taking random walks through the view graph. Accessed from: Academia.edu

Church, S. 2010. YouTube Politics: YouChoose and Leadership Rhetoric during the 2008 Election. Accessed from: UWO

Winograd, M., Hais, M. 2007. Millennial Makeover: MySpace, YouTube, and the Future of American Politics. pp.1-8. Accessed from: Google Scholar

Askanius, T., Uldam, J. 2011. Online social media for radical politics: climate change activism on YouTube. Accessed from: Academia.edu

Williams, C., Gulati, G. 2016. Congressional Candidates ’ Use of YouTube in 2008: Its Frequency and Rationale. Accessed from: CiteSeerX

Keen, A. 2008. The Cult of the Amateur: How blogs, MySpace, YouTube and the rest of today’s user-generated media are killing our culture and economy. Accessed from: Google Scholar

Manovich, L. 2009. The Practice of Everyday (Media) Life: From Mass Consumption to Mass Cultural Production?. pp. 319-331. Accessed from: The University of Warwick

Jarrett, K. 2010. YouTube: Online video and participatory culture. pp.327-330. Accessed from: Taylor & Francis Online

Van Dijck, J. 2013. YouTube beyond technology and cultural form. Accessed from: Oapen.org

 

Notes

-https://www.businessinsider.com.au/key-turning-points-history-of-youtube-2013-2
-http://seriac.org.uk/ABOUT%20YOUTUBE%20.pdf
-https://www.tigertimesonline.com/entertainment/2018/01/31/the-evolution-of-youtube
-https://readwrite.com/2006/10/09/google_buys_youtube
-https://www.theneweconomy.com/youtube
-https://www.thestreet.com/investing/youtube-might-be-worth-over-100-billion-14586599
-https://www.omnicoreagency.com/youtube-statistics/

About Tom Larcher 2 Articles
Hey! I'm in the final semester of my Bachelor of Computer Science & Technology, majoring in Information Systems. I've been working in the technology sector for over a decade, with a focus on project management and software development. In my spare time, I ride motorcycles fast.

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