How does YouTube make money? A look into success

YouTube Logo

Introduction 

Hello and welcome to my article series where I look into the business model of some of the most successful businesses of our time. This time around we’ll be taking a look at the biggest video sharing platform on the internet, Youtube. We’ll be looking to answer the question “How does Youtube make money?”. Later on in the article, we’ll also look into how you can make money from YouTube yourself.

YouTube founders

About YouTube – “Tune in, Hook up”

YouTube is by far the largest and most popular video-sharing website on the internet. With 300 hours of video uploaded per minute and 5 billion videos being watched per day, there really is no real competitor. 

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But YouTube wasn’t always like that. It had more humble beginnings. YouTube was created in 2005 by PayPal employees Chad Hurley, Steve Chen, and Jawed Karim and was originally intended as an online dating service.

How does YouTube make money?

As Youtube is a free-to-use platform, a lot of the people that use it are confused as to how they can generate revenue. Well, the answer is simpler than they think and it’s something they’re pretty familiar with, advertising. Just like a billboard by the highway or an intermission during a tv show, Youtube generates revenue mainly through showing ads to its users.

Advertisements will be delivered in a few different forms, banners on the site page, video and banner advertisements shown in videos, and sometimes before a video starts.

Youtube also has a paid membership called YouTube Premium, where you pay a monthly fee like you would for Netflix or HBO. The paid membership comes with a couple of benefits, such as an ad-free Youtube experience, premium, and Youtube Original shows and even a music service.

  • Ads

As mentioned before, YouTube shows ads to its users in multiple different forms, like in-video ads, banners ads, and video ads. Ads can pay in a few different ways, based on impressions, clicks, or conversions. 

Impressions will payout based on how many people see or watch the ad and are counted in “CPM” or “Cost Per Thousand”. If you have a $1 CPM, that means you’ll be paid $1 if a thousand people see your ads.

Clicks would be counted in CPC, or “Cost Per Click”. This means if you have a $0.01 CPC, you get $0.01 for every time someone clicks the ad.

Conversions are pretty much exactly what it says, and it pays for every person who sees the ad, clicks it, and converts into a customer. This could be buying a product, signing up for website membership, or subscribing to an email list. The payout varies a lot depending on the product or type of conversion.

  • Paid Membership

YouTube offers a paid membership option called YouTube Premium $11.99/per month. It gives you access to features like ad-free viewing, the ability to download videos to watch offline and YouTube Music Premium, which is a Music service like Spotify and Tidal.

  • Investors

YouTube has been getting a lot of money injected from investors over the years. A good example would be when YouTube secured its first major piece of funding in 2005. from Sequoia Capital, an amount of $3.5 million.

When did YouTube start making money?

This depends on how you look at it. YouTube first started monetizing its platform in August 2006 with ads. But it received its first big chunk of funding ($3.5m) as early as November 2005. Since then, a lot has changed and a lot more investment capital has been injected. In the beginning, there were no paid memberships, and ads were participatory. Now they can be seen as intrusive by some.

Who owns YouTube?

At the start, its founders Hurley, Chen, and Karim owned Youtube. Karim later left the company to continue his education. Google acquired Youtube in October 2006 for $1.65 billion. Today Youtube is estimated to be worth $190 billion, which makes it seem like it was definitely a good investment on Google’s side.

hundred dollar bills

Can I make money with YouTube?

You can, and there are plenty of ways! The usual way people make money from YouTube is by consistently making and uploading YouTube videos in a specific niche. Some examples would be gaming, commentary, cooking, or permaculture. They then gather a following big enough to make money off of ad revenue, sponsorships, and Patreon pages.

To make money off of ad revenue, you first must reach partnership status on YouTube. The prerequisite for becoming a partner is 1000 subscribers, and 4000 hours of watch time. This might seem like a daunting task, but with a consistent schedule and good content, the numbers should grow and eventually pick up a snowball-effect. You can also promote your videos on sites like Reddit and other social media.

Making money with YouTube by advertising your product

You can also make money via YouTube by using it for promotion. If you have a company or product, you can grow your own channel around it. However, a more effective way would be to sponsor Youtubers in a related niche to talk about it.

An excellent example would be if you are making a game, you could find a YouTuber that regularly makes videos about video games. You then pay them to make a video featuring your game. This will lead to their followers checking out your game and potentially buying it and playing your game.

Another example would be if you’re selling gardening equipment. You set up a partnership with YouTubers in the gardening, where you supply the equipment and they tell their followers where they got it. You could even set up discount codes for specific YouTubers. This helps you track who drives sales and gauge how much their promotion is worth to you.

 

And that is about it for this article about “How does YouTube make money”. I have written similar articles about Reddit, WhatsApp, Facebook, WordPress, and Instagram. If you’re interested, please check them out.

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