The big news of the morning is that YouTube has announced it’s hit 100 million videos served per day. Founded in early 2005, the company has raised at least $11.5 million in venture funding from Sequoia Capital. It’s one of many startups offering video sharing services, but for some reason now has an incredibly dominant position. This weekend’s announcement said that 60% of videos watched online are now served up by YouTube.
How did this happen? Being an early mover into MySpace via embeded flash may have helped. The social features, recently added by Google Video as well, could be a winning combination. The smart branding via a catchy URL, simple as it sounds, may have helped as well. Partnerships with NBC and a variety of other content producers may have helped - though these are most likely a consequence of the site’s popularity far more than a cause of it. It’s hard to say just why YouTube has caught on and other services have not. It just might be that YouTube is simple, easy, works well enough and people like it - there may be no more mystery than that.
A key question that remains unanswered of course is whether the service will succeed financially. Forbes estimated that bandwidth costs were approaching $1 million per month in April, when YouTube was reported to have been seeing 12.9 million unique visitors per month (March). Three months later that number is reported to be approaching 20 million unique visitors per month.
A single banner ad above each video seems highly unlikely to raise a substantial amount of revenue. It’s hard to imagine that paid partnerships on a site based on free, user uploaded viral videos are going to raise substantial revenue. Presumably there will need to be more advertising added in the future. Whether users will accept that or jump to another video sharing service may be the key question. Is mass adoption of new social web services contingent on free riders resistant even to advertising? I don’t think so, but we will have to wait and see. Something is going to have to happen or YouTube is likely to become a poster child for Bubble2.0, an era when companies floundered not because of lack of users but lack of a viable business model.
Comments
You Tube caught on for the simple reason of being backed by Sequoia Capital. Funding from Sequoia creates a buzz because they back Google and the media eats it up. Sequoia Capital is the first step to success. This is the reason why they are the champs.
It’s hard to imagine that these google ads alone could bring in $1M/month, and the actual operation costs is obviously higher than just bandwidth - there are employees to pay, infrastructure to maintain, etc.
Maybe there business model is to simply get acquired by google and walk away as seems to be the model of so many other sites.
what are they investing in. 36 million for what?
no doubt in the future they will introduce the “pay as you watch” videos like google have, Or perhaps have a paid subscription to watch exclusive movies.
Because like the article says, A single banner advert can’t be producing that much revenue, and 100 million downloads a day will create quite a bandwidth bill.
“what are they investing in. 36 million for what?”
Bandwidth and server costs for a site serving 100 million videos a day isn’t be cheap. Hell, serving up 100 million HTML pages isn’t cheap. Video is even more expensive.
@Andrew: I wonder how many 15 year olds are captivated by Sequoia Capital’s buzz? None. Sorry.
@Chris: But how many 15 year olds are captivated by all the media brought about by the Sequoia Capital’s buzz? Many.
20 million unique users watching video is defiantly worth something. Now its a matter of YouTube stepping out side of the box they have created to find a way to produce revenue. Such as premiering movie trailers, allowing users to order hard copies of videos, music video downloading… I could think of many more ideas if I had 36 million. Through my experiences YouTube is winning because it simple to upload a video and users do not have to wait for the video to be approved/moderated. With the demographic using YouTube its all about instant-gratification. I want a embed link right away and with YouTube I can get it.
Based on this ‘quoted’ number of video views, they must be paying a killing in bandwidth costs and I am not convinced that their revenues exceed their expenses.
At this point it’s simply a numbers game - minimize the bandwidth costs and maximize your advertising CPM. This is unless YouTube can muster up new revenues streams or determine a new corporate strategy.
I think features mentioned for youtube are also available with other video sites. So someone must do a detail analysis on why they have so much user base. As far as revenue model goes, none of Sequoia company is gone die because it does not have business model and have too many users. Remeber the google story, same condition, no revenue model. Anyway, I think they have it right now and they are just increasing valuation at this time, at particular moment they might start to make money. As far other expenses go, beside bandwidth they don’t seem to have much with 30 people team.
@Chris You missed Andrew’s point which is valid and on point. The media pays attention Sequoia - not the kids. The kids pay attention to the media in whatever form they receive it.
VC’s supply more than just money. Its about connections. Sequoia has connections. The Google name made Sequoia. Now Sequoia is using their name to make others.
IMO: they will stream commercials to make money. Streaming 100m videos a day means they can charge $1 per 20 second commercial clip per stream and make $100m a day. They will most likely charge more than $1 per stream. I also do not think anyone will buy them out at this point as they are too expensive with all the money pumped into them. Partnerships and commercial streams should work just fine.
Chime in if you feel otherwise, but YouTube really took off when The Chronic of Narnia Lazy Sunday video was posted there. It got so much play that everyone was checking it out … specifically, on YouTube.
Considering that in most cases the most watched videos on YouTube are copyrighted materials…I wonder how the copyright holders are going to deal with the fact that YouTube will create a revenue base off of their content. For instance, if Youtube began inserting advertisements in the video similar to Revver.com, this would post a significant legal problem. Revver has a zero-tolerance policy towards copyright infringement. However, the popularity of YouTube is the ability to view copyrighted material. Despite the popularity of the service, it may be a fatally flawed service being that the foundation if copyrighted material. I question whether it can be a COMMERCIAL success unless the legal issues are resolved. Although YouTube is not a filesharing service like Napster, the similarities are striking in that the entire concept revolves around copyrighted material. They may just popularize this niche and never be able to monetize it.
To quote cnet:
“But even while the company’s profile mushrooms, and more than a year since YouTube was founded, executives have yet to roll out a business model.”
The fact that they’ve raised a lot of capital (not unlike meebo) is mind blowing to me. How do you go to a VC meeting and talk your way into 10+ million dollars with no clear ways to make that money back? Someone please tell me. I have to be missing something.
@John thats a great idea. Do you know how much everyone else who does that with streaming video charges for that type of placement?
I study the entire telecom industry, and see how it communications are tieing in more everyday with entertainment (cable/phone/satellite/broadband/cell/longdistance you name it).
I foresee YouTube becoming a channel, if not an entertainment service in their own right. I would like to sit at my tv and have a channel just to select YouTube videos for watching on my TV.
Or like my DVR use, at least select 100 YouTube videos I might want to watch and que them for downloads to my TV, where I’ll watch them later. Or que it to always download the top 100 videos to my DVR.
Eventually, YouTube could be it’s own tv broadcast network, with different channels composed of the different content.
What do you think? http://www.telecommer.com
“How do you go to a VC meeting and talk your way into 10+ million dollars with no clear ways to make that money back?”
You don’t, most of times. What probably happened is that Sequoia had a few millions to spend on video websites, because they believed it’s “the future”: They went to some of them and found that YouTube was the best to receive the investiment.
What about filtering YouTube for local videos. I run a website dedicated to my community Idaho Falls, Idaho. I’ve tried showing just videos from our area, but it’s not that easy. A filter would be nice to funnel just locally-produced videos through, which then creates a kind of public access channel for anyone.
http://www.idahofallz.com
It appears that you are starting to grasp the youtube phenomena. Don’t worry about the revenue–getting to $40 MM per year will not be difficult.
Two words: Lazy Sunday.
John, if YouTube adds a 20 second commercial preceding each video, that 100mm videos viewed each day figure will fall by at least 50% and open the door for a commercial-free rival to steal significant market share. Ask any user and they’ll likely tell you that one of their favorite features of YouTube is the lack of advertising. Advertising will, to a large extent, negate the fun aspect of the site.
Only hardcore users watch videos on Youtube by going to Youtube and looking for something to watch. The vast majority watch them either on other sites which embed the video, or via links from email, myspace, blogs, etc.
This is why I think it’s crazy, idiotic, and fundamentally “not getting it” for companies like NBC or CBS to do deal with Youtube to distribute content. They should host their vidoes themselves, copy the embedded features”, make them higher quality, and let them virally circulate around the web.
YouTube will buy or imitate http://revver.com … and monetize these viral videos that are spreading like wildfire all over MySpace, blogs, and the social networks with simple and acceptable ads. Viewers will accept and enjoy post roll ads after YouTube content. This model will significantly disrupt the $40B US TV ad market. The viewer and the independent content creator are now back in charge of media entertainment.
BTW, I have also heard that companies are putting up corporate training and internal communication videos on YouTube just because it is so simple to use. Marketing departments now have a way to publish video and bypass their cranky IP departments.
@ John “Streaming 100m videos a day means they can charge $1 per 20 second commercial clip per stream and make $100m a day. They will most likely charge more than $1 per stream.”
Just for you information, no advertiser would pay any where near $1 per 20-sec commercial stream. I can see them going to a situation where they play commercials at the beginning of videos much like Ifilms and CNET. The CPM for that type of advertising is around the $50-$60 range. That means advertisors are paying 5 to 6 cents per stream of their commercial. No advertising reaches any where close to a CPM (cost per 1000 impressions) of $1000!
I’d heard that PirateBay makes $20,000 per day in advertising, thought that number does seem dubiously high to me. That works out to around $600,000 per month. [sarcasm] If YouTube reigned in the bandwidth costs and switched to porn advertisers, they’d be all set! [/sarcasm]
telecommer: it could become its own public access television, interesting. I think everyone is violently agreeing, the overall idea of YouTube is to get a youth audience video content, and do it quickly and let the user control the content, and time of delivery (ie; they can upload all day long). The reason it works is simple, its easy to use. Commercial ads will slow the flow but to a degree, kids won’t even notice the commercials if they are short, they’ll just wait. They’ll wait until a non commercial site surfaces, just like YouTube.
I can’t wait to see what happens.
I meant “IT” departments … but that was a funny slip.
How Youtube makes money?
Maybe Contextual video ads. Maybe video rentals…maybe partnerships w. TV station. But who cares?
There will be a way to monetize 100 Million Downloads. For Youtube there is absolutely no rush to change anything right now, because more embedded videos will create more traffic on the long run. Once you have 90% market share (see Myspace) you can basically do whatever you want.
“The Google name made Sequoia.”
Don’t forget that Sequoia was also an investor in Atari, Apple, Oracle, Cisco and Yahoo.
A key reason YouTube has succeeded where others have failed is that it optimized for immediate and simple playback at the expense of video quality. That’s the main reason why it became the viral leader.
Given that the content owners are coming around and there really is a lot of non-professional content, it seems completely reasonable that YouTube could implement a revenue model.
How come they get millions of dollars just like that? I can not a diddly squat
for anything.
2$CPM with google ads : they probably get something better.
Let says 50Millions page views/day -> 100 000$ a day -> 3$ millions a months
Most of the videos are very compressed with Flash : generally less than 1Mo.
1$g per Go (rates from expensive CDN networks) : 1$ = 1000 videos
Cost per day = 100 000$ 30%Discount -> 70 000$ month
3millions $ - 2 millions $ = 1 millions Cash
With 30 millions dollars invesments, you decrease bandwitdh cost even more by investing in your own facilities…
At the end of the year, you have a company earning 15 millions dollars
and growing.
-Normal company valuation : 20 times * 15 millions = 300 millions.
-Tech company growing fast : 100 * 15 millions = +1.5billions$
Sequoia made a create investment
Youtube will be the most profitable TV channel because the content is free and it get almost free promotion by millions of users on their blog and website.
I’m person that started browsing YouTube after the Lazy Sunday video was posted there.
Kids don’t go to YouTube because of the media hype. Kids don’t care at all what website MTV or NBC (read: the media) thinks is cool. They care what their friends think is cool.
Ask any, any, ANY kid where they found out about YouTube. I defy you to find one who doesn’t say something to the tune of “one of my friends sent me a video from there and I signed up.” Not “I saw it on TV.” Never “I read about it on MSN.” That is not how the Internet works. Of all places, I’d expect a little more modern-ness from the audience of TechCrunch. I guess it just goes to show that some people will never get it.
YouTube is a great catchy name, but i still don’t have an idea where the name came from? does it have any meanings other than it sticks well in your mind?
I blogged about YouTube (co)founder Chad Hurley at the elite media conference this year.
link to the news article - http://www.siliconvalley.com/m.....valley_rss
They are busy making new friends and trying to find some partners, as mentioned in this post, the current ads on YouTube at the moment is unlikely to cover the bandwidth cost.
Has anyone found a good article/essay/blogpost/podcast ANALYZING WHY YouTube has so successfully and so quickly risen above every other video sharing site? If so, please share the link. Marshall’s intuition that “…YouTube is simple, easy, works well enough and people like it” may be correct but I’d love to read a more substanstial analysis. Thanks.
I don’t think that it has anything to do with being the best Kal, it is just that people don’t like making choices. In a society as herded as the US, ones the numbers are up the herd will follow.
They own no content!
Well, I did write something about this back in May:
Can YouTube Make Money?
http://www.justinlee.name/2006.....ake-money/
It’s quite a long read but do leave me a comment
sharer you’ve got some really weird numbers there.
First of all the movie sizes. Based on most of the movies I’ve seen on YouTube, it’s about (Movie Length)*2 MBytes of data. Assuming an average length of 2 minutes per movie (check out the most viewed pages) that’s 4 MByte per Movie and 400′000′000 Mbyte (400 Terabytes) of traffic per day. That’s 37 Gbit/s of /average/ bandwith actually used. I’m quite sure a company this size doesn’t pay per GByte traffic but per GBit connectivity.
To be able to sustain bursts i’d expect them to have about 60-80 GBit/s max. bandwidth. That’s about 700 times 100 Mbit Ethernet. A single 100 Mbit uplink in a well connected datacenter costs some $1000-3000 per month, depending on uplink provider, connectivity of datacenter, overall datacenter condition etc. Assuming they get 50% off a medium price ($2000 - 50% = $1000 per 100 Mbit) they’d just pay some $600-800k, peaking at maybe $1.2M.
Now on to the advertising part… If they actually make $3M per month off it, they’re stinking rich in no-time. I don’t think they do, there are too many factors ruining that. First of all embeded videos: At this time there’s /no advertising/ in embeded videos. They can’t make money off them. Since apparently only hardcore youtubers actually look for videos on the site, i guess we can remove some 40-80% of those 100M views per day, let’s make it 40M remaining ones. Now with everything from personal firewalls, proxies and other software (think browser, now think “overhyped”…. yep, you got it, “Firefox”… Combine overhypedness of Firefox and target audience of Youtube (Blogger-Myspace-ish-iPeople (eww))) i assume there to be another 5-10% impact on revenue. Summed up they might have everything from 20M to 80M ad impressions per day - noone except some 30 people knows. Maybe even some of them don’t - noone except them knows that, either.
Let’s hope - for youtube - that they actually do have enough ad impressions to survive and don’t have to bother about annoying their viewers with in-video ads. And if they don’t, there’s always the possibility of becoming a tv network.
And now they are being sued:
http://www.vh1.com/news/articl.....lines=true
Is YouTube as an ISP?!? I don’t think so…
Give the guys at Youtube a break.
They were barely founded about 1,5 years ago. No one would expect a business to be cashflow positive immediately. It took more than 6 years for Amazon to make it…
Rodrigo,
I think the alarming aspect is that YouTube is having exponential increases in costs: the more people use the site, the vastly more expensive it is to run that service. Normal businesses try to decrease expenses over time, but YouTube’s current operations does just the oposite.
In my opinion, they will not be able to cover expenses in the long run. People won’t pay for that crud content and advertisers are probably not interested in sponsoring it, particular with the copyright liabilities.
There’s also the risk that if YouTube accept video ads before/after the content, then they will loose their “Safe Harbor” defense in which they are operating with respect to copyright violations. There’s an interesting article on that sticky situation on Hollywood Reporter Esq. website which reviews the legal aspects.
Amazon actually sold goods: bad comparison.
If you really want to focus on video, and use batch upload of even large files, regardless of file format, see videowebtown.com
Bandwidth approaching $1 million per month? Ouch!!! I wonder if the guys at YouTube considered using Amazon’s S3 to reduce costs???
- ddh
Ultimate YouTube Video
Remember when YouTube went down the other day? When it finally came back online this was the last video posted. I can’t say for sure if this is what caused it, but it’s got to be the craziest video I’ve ever seen. You can’t even imagine how it ends – you’ll have to watch the video to know for sure.
Just check out the site and you’ll see how many views it has. It’s rapidly becoming one of the most viewed YouTube videos and I’m pretty sure it will be one of the featured videos in the next few days.
http://www.youtube.com/profile?user=ebayauction
7N0Vo7ElLFY faIjxhPlMWjzj Iqz2aYJjdl
Want our troops home!
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