YouTube Business Model | How does YouTube make money?
Started as a dating website by Steve Chen, Chad Hurley, and Jawed Karim in February 2005, YouTube is now the world’s largest video sharing website and the second largest search engine in the www. More than a billion hours are spent each day watching YouTube videos, there are more than 400 hours of content uploaded every minute, the platform is available in 76 different languages and is used not only by individuals but also by big brands, celebrities, and many other Youtube exclusive celebrities to promote themselves and to earn money through Youtube. But how does Youtube make money and what’s Youtube business model? Well, we have all your answers here.
How does Youtube work?
This Google owned website allows its users to upload videos, share and comment on other videos, subscribe to other users’ channels and make money by monetizing their videos. The videos uploaded on the platform are free to watch.
But how does YouTube make money? Intuitively, it might sound confusing: how can such a platform earn revenue when its content is free to access? But in reality it’s pretty simple. Let us take a look into that reality!
Understanding YouTube’s Business Model
Well, as we’ve discussed earlier, most of YouTube’s content is free to access. This along with YouTube’s highly gained success and popularity, it has a very high user base (over 30 million visitors per day) which is the reason that YouTube doesn’t actually require to charge for its services to make money.
The actual product that YouTube sells is its users. This is an advertisement based business strategy.Because of YouTube’s high user advantage, it provides targeted advertising feature to the advertisers and create a win-win situation for both.
However Youtube also makes money through a subscription based model as well – Youtube Red. Youtube red offers certain exclusive benefits to the subscribers by charging just a nominal amount for membership.
How does Youtube make money?
One of the ways Youtube make money is through sponsored advertisements. In the above picture, the result that is circled is a paid ad. It is a sponsored video and the advertiser pays YouTube based on the number of views it gets after such an ad has been clicked on. It is called SERP advertising.
Another advertisement revenue stream of Youtube is the embedded advertisement. The above picture shows how an advertisement is embedded in a YouTube video. This advertisement is played before the actual video begins. Also, short ads are placed in between videos, that also generate income.
Here the company earns money from the advertisers based on the number of views the ad gets.A proportion of that fee is paid to the creator of the video. However there is an option to skip the advertisement and the advertiser is not liable to pay a cent if a user skips the advertisement before 30 seconds or before the end of the advertisement.
Landing Page Advertisements
A Landing page is that page of YouTube which opens first—without logging in. It is the homepage at Youtube. According to a study, a video at a landing page can increase the conversions up to 80%. Youtube makes the most of it by charging advertisers most for a landing page advertisement.
The landing page advertisement on Youtube is a banner style advertisement which can contain both pictures and videos and can be used by advertisers in numerous ways to shout out loud the story.
Just like Netflix’s business model, Youtube has also launched its subscription-based freemium revenue model, Youtube Red, which gives you an enhanced, uninterrupted experience across YouTube, YouTube Music, and YouTube Gaming.
YouTube Red membership has the following perks
- Ad-free videos
- Access to exclusive Youtube Red content
- Offline videos and songs
- Background play when using other apps or when your screen’s off
- Audio mode on the YouTube Music app
- Free Google Play Music Subscription
The subscription cost to join Youtube Red is $10 per month.
Youtube revenue sources don’t stop at advertisements. The company has partnered with its top content creators who wanted to charge a subscription rental or purchase fees for their content and made their uploaded content as paid content which requires users to pay for a subscription or purchase fees to access the content of the channel.
The paid content feature began as a pilot program in 2013 with a few dozen accounts, including popular brands like Sesame Street and the Professional Golf Association. The feature is now widespread on the platform. Even though the charges aren’t specified by the company, it’s said that the revenue sharing between the content developer and Youtube is 55:45.
YouTube TV is a US-exclusive live TV streaming service which lets the subscribers watch cable channels like ABC, NBC, FOX, ESPN, Disney, and many more on Youtube. This is a subscription based service and is expanding at a faster rate.
With more than billion users, Youtube TV is a great addition to the Youtube’s revenue model. The service is provided at a cost of $35/month, comes with 6 different accounts, and provide streaming of over 50 channels. However, there are some premium channels which can be subscribed to after paying certain additional subscription amount. Youtube TV can be streamed on any device and comes with a complimentary Chromecast with every subscription.
You must have noticed related products under some videos on Youtube. These products link to the affiliate partners which pays commission to Youtube if you buy their products.
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