Economy of Youtube

Before being purchased by Google, YouTube declared that its business model was advertisement-based, making 15 million dollars per month.

Some industry commentators have speculated that YouTube's running costs — specifically the bandwidth required — may be as high as 5 to 6 million USD per month, thereby fueling criticisms that the company, like many Internet startups, did not have a viably implemented business model. Advertisements were launched on the site beginning in March 2006. In April, YouTube started using GoogleAdsense. YouTube subsequently stopped using AdSense but has resumed in local regions.

Advertising is YouTube's central mechanism for gaining revenue. This issue has also been taken up in scientific analysis. Don Tapscott and Anthony D. Williams argue in their book Wikinomics that YouTube is an example for an economy that is based on mass collaboration and makes use of the Internet. "Whether your business is closer to Boeing or P&G, or more like YouTube or flickr, there are vast pools of external talent that you can tap with the right approach. Companies that adopt these models can drive important changes in their industries and rewrite the rules of competition", "new business models for open content will not come from traditional media establishments, but from companies such as Google, Yahoo, and YouTube. This new generation of companies is not burned by the legacies that inhibit the publishing incumbents, so they can be much more agile in responding to customer demands. More important, they understand that you don't need to control the quantity and destiny of bits if they can provide compelling venues in which people build communities around sharing and remixing content. Free content is just the lure on which they layer revenue from advertising and premium services".

Tapscott and Williams argue that it is important for new media companies to find ways to make a profit with the help of peer-produced content. The new Internet economy that they term Wikinomics would be based on the principles of openness, peering, sharing, and acting globally. Companies could make use of these principles in order to gain profit with the help of Web 2.0 applications: “Companies can design and assemble products with their customers, and in some cases customers can do the majority of the value creation”. Tapscott and Williams argue that the outcome will be an economic democracy.

There are other views in the debate that agree with Tapscott and Williams that it is increasingly based on harnessing open source/content, networking, sharing, and peering, but they argue that the result is not an economic democracy, but a subtle form and deepening of exploitation, in which labour costs are reduced by Internet-based global outsourcing.

The second view is e.g. taken by Christian Fuchs in his book "Internet and Society". He argues that YouTube is an example of a business model that is based on combining the gift with the commodity. The first is free, the second yields profit. The novel aspect of this business strategy is that it combines what seems at first to be different, the gift and the commodity. YouTube would give free access to its users, the more users, the more profit it can potentially make because it can in principle increase advertisement rates and will gain further interest of advertisers. YouTube would sell its audience that it gains by free access to its advertising customers.

"Commodified Internet spaces are always profit oriented, but the goods they provide are not necessarily exchange value and market oriented; in some cases (such as Google, Yahoo, MySpace, YouTube, Netscape), free goods or platforms are provided as gifts in order to drive up the number of users so that high advertisement rates can be charged in order to achieve profit."

In June, 2009, BusinessWeek reported that, according to a report by San Francisco-based IT consulting company RampRate, YouTube was far closer to profitability than previous reports, including the April, 2009, projection by investment bank Credit Suisse estimating YouTube would lose as much as $470 million in 2009. RampRate's report pegged that number at no more than $174 million.

Source: Wikipedia