A well thought out business model is essential for a successful business. “An Internet business model is an organization's strategic business system for producing a customer-oriented value proposition. The business system is composed of one or more targeted customer segments; hardware and software architecture, the organization's product offering; the organization's business partners; and associated resources required to achieve the organizational objectives.” (Dennis, Fenech & Merrilees, 2004)
YouTube is a business centered around providing flash videos to its visitors. The videos are uploaded by registered users, and are made available internationally. This puts YouTube in the business of entertainment, news, education and social networking. These are vast businesses with many competitors. It is now possible to rent movies directly from YouTube as well.
When Google attained YouTube in 2006, the development of this service grew in multitudes. The business model which was put in place for such a service is based on a revenue sharing model along with some innovative / creative technical techniques.
YouTube is so popular, and does well across all these areas because of several factors. First, user generated content is unique, plentiful and costs YouTube nothing to produce, nor do they need to take any specific responsibility for its quality. YouTube benefits from network effects because the more content they have uploaded, the more good content statistically tends to come from that content. The videos on YouTube are plentiful, but are also very diverse in their subject matter. This attracts many different demographics.
YouTube also benefits from the economy of attention. Their income, derived from advertising is dependent on exposure to advertising. Having visitors spend more time on YouTube exposes them to additional advertising impressions, increasing revenue. Advertising (see the advertising page for more information) is something YouTube's parent company Google knows a lot about and excels in. They therefore have an advantage in the area of video advertising over other competitors (Richmond, 2009). This is in contrast to some other competitive business areas like television series.
Lastly, YouTube is also in the business of providing users with information. The site is filled with news stories, do-it-yourself guides, lecture material and educated users willing to help others. The business of information is lucrative on the internet and puts YouTube ahead of competitors that might focus on fictional television pieces or niche interests like amusing blooper vidoes.
Because advertising plays a huge part in YouTube’s progressive business the introduction of the Partner Program was put in place. “YouTube partners are independent video creators and media companies who are looking for online distribution and who meet our qualifications. Becoming a partner gives you the ability to share in ad revenue from your YouTube videos." (Chitu, 2007). With this program, the availability and ease for people to upload advertisements along with their videos has increased significantly. Further information surrounding the advertising model will be discussed under advertising revenue.
Bandwidth is a very important element to a service such as YouTube. Along with the costs of bandwidth decreasing each year, Google has managed to find ways of lessening this cost. The purchase of dark fiber which is currently in place but unused, is being snapped up by Google. "Dark fiber is optical fiber infrastructure (cabling and repeaters) that is currently in place but is not being used. Optical fiber conveys information in the form of light pulses so the "dark" means no light pulses are being sent" (Foxley, 2003). This then allows them to take on different means of routing their traffic and having their content run smoothly across the world.
Based on information from http://www.helium.com/items/1731988-youtube-business-model we have created this pictorial diagram of YouTube's Business model:
