How Does YouTube Make Profit

ytYouTube is very profitable

  • Google purchased YouTube in November 2006 for 1.65 billion.
  • This price indicates that YouTube is an extremely profitable website.

So how does YouTube generate profit?

  • Advertisements:
  • People sometimes have to see advertisement clips before the video, and there are also Google ads on the right side of the page
  • Whenever people see the clips or click on the ads, YouTube makes profit
  • YouTube’s net advertising profits will probably grow to 1.51 billion dollars in 2015 in the US alone
  • Sponsored partnerships:
  • Viewers rent movies or TV series online from YouTube for a reasonable price.
  • Bidding keywords:
  • When we search for a video, we usually type in keywords instead of the video title
  • How much does it cost for YouTube to broadcast videos?For a regular music video (4 minutes long), YouTube would hold around 80 different versions of the video, and it would take up around 2.8 GB of space (the size ranges from 90MB/min to 1MB/min). Storing this video at 30 different locations around the world would cost around $2.20, since the estimated cost of storage is around $0.02/GB. This reflects the amount of gross profit that YouTube makes each year, since they have low costs for services and they earn large numbers of revenue from their business.
  • Each video is associated with several keywords to make it easier to find when we type in keywords. To generate profit, YouTube allows users to promote their videos by bidding on keywords.

YouTube Algorythms

Recommendations Algorithm

  • Content based recommendations – it would predict user preferences based on their past actions.
  • Collaborative recommendations – it would try to find similarities between a user and other users who have already used the system,
  • Hybrid systems - it wouldcombine both approaches to offer better recommendation performance.

Its Goal: To provide the user with the most relevant results to related to their search query. Like any other algorithm, YouTube’s search algorithms are constantly changing.

YouTube’s ranking videos algorithm

  • YouTube changed its algorithm from “view count” to “watch time”
  • View count - If YouTube applies this into its algorithm, then new videos will never be on the list, due to them having no view counts.
  • Watch time - This is an important factor of the algorithm for promoting videos. It will prioritize videos that lead to a longer overall viewing session over those that receive more clicks
  • The update measures actual minutes spent watching video content rather than the percentage of the video watched. For example, watching two minutes of a two-minute-long video does not count for more than watching two minutes of a four-minute-long video.
  • This encourages creators to upload more enjoyable content to attract a more engaged audience.

The Competitors of YouTube

    • Main competitors include Netflix and Hulu on the movie and series market. Direct competitors include DailyMotion, Amazon, Vessel, Comcast, Yahoo, Vimeo, and

    How YouTube’s competitors operate

    • Vessel: It filters videos to show only ‘good quality professional videos’. They pay more to their video creators than YouTube does through advertising.
    • Amazon: They include movies trailers, game reviews, interviews, etc. However, their videos lack embed features, view counts, and cannot let viewers follow a particular content creator or brand.
    • Comcast: They are moving into digital television by building a streaming site that will feature premium content as well as user uploads.
    • DailyMotion: It has 120 million monthly visitors. Strong competitor against YouTube.
    • Yahoo: They are launching streaming service in the summer. They plan to post strictly premium content, competing more with Netflix and Amazon than YouTube.
    • Vimeo: They operate in a way similar similar to YouTube.
    • They include prime content, such as movies.
    • Twitch: They focus on video game walkthroughs and plays.

    What YouTube is doing to fight the competition?

    They are trying to improve by increasing bonuses to current YouTube creators, stars and viral videos, which would probably encourage them to create more videos.

    Conclusion: Because of YouTube’s already established popularity, the only way to compete against it would be to provide better advertising solutions, since YouTube has been facing problems with getting profits from advertisements.