YouTube, Google, and the Rise of Internet Video

Abstract

Although Google had a stellar performance in Web search, many of its other services, such as Google Video, were less successful. This case describes how YouTube came to dominate the video market for user-generated content (UGC), while Google Video tried various entry strategies and ultimately failed, ending with the acquisition of YouTube. It also reviews the various competitors in the UGC market, chronicles the entry of established and new players in the area of professionally generated content (PGC), and outlines the key challenges related to monetizing the acquisition of YouTube for Google.

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Resources

Exhibit 1: Unique Visitors for Online Video

Top Video Sites for August 2006 and 2007 (U.S., Home and Work)

Site

Aug. 2006 (in thousands)

Aug. 2007 (in thousands)

Percentage Change (%)

YouTube

34,039

56,453

66

vids.myspace.com

17,923

16,759

–6

Google Video

13,483

14,450

7

AOL Video

NA

13,632

NA

MSN Video

11,984

12,486

4

Yahoo! Video

5,958

11,987

101

Metacafe

2,822

4,151

47

Break.com

2,926

3,954

35

Veoh

663

2,958

346

Atom Films

1,102

1,422

29

Source: Nielsen/NetRatings, as cited on http://mashable.com/2007/09/13/nielsen-august.

Exhibit 2: Time Person of the Year

Figure

Source: Lev Grossman, “Time’s Person of the Year: You,” Time Magazine, December 13, 2006, http://www.time.com/time/magazine/article/0,9171,1569514,00.html.

Exhibit 3: U.S. Online Video Viewers, 2003–2010 (in millions)

Figure

Note: Ages 3+; online video viewer defined as an individual who downloads or streams video (content or advertising) at least once a month.

Source: David Hallerman, “Video Advertising Online: Spending and Audience,” eMarketer, July 2007.

Exhibit 4: User-Generated Online Video Content as a Percentage of Total Online Video Content Watched in the United States, 2006 and 2010(f)

Figure

Source: “User-Generated Online Video: Competitive Review and Market Outlook,” Screen Digest, January 2007.

Exhibit 5: Demographic Profile of U.S. Online Video Viewers, January 2006 (%)

Percentage of Respondents

GENDER

        Male

62

        Female

38

AGE

        12–17

15

        18–24

17

        25–34

24

        35–44

21

        45–54

15

        55–64

6

        65+

2

EMPLOYMENT

        Employed part/full time

69

        Retired

3

        Student

20

        Homemaker

3

        Unemployed

4

        Household income of $75,000+

45

RACE/ETHNICITY

        White

72

        African/American

11

        Hispanic/Latin

10

TYPE OF ACCESS TECHNOLOGY

        Broadband

81

        Dial-up

19

        Plan to switch to broadband in next 12 months

47

Source: Arbitron/Edison Media Research, “Internet and Multimedia 2006: On-Demand Media Explodes,” May 2006.

Exhibit 6: Demographic Profile of U.S. Online Video Viewers, February 2006 (%)

Heavy Viewers

Moderate Viewers

Light Viewers

Non-Viewers But Will This Year

Non-Viewers and Won’t This Year

GENDER

        Male

65

54

44

41

40

        Female

35

46

56

59

60

        Age (mean)

33 years

37 years

37 years

38 years

39 years

MARITAL STATUS

        Married

40

54

46

61

50

        Single

41

23

25

14

18

        Committed

11

11

13

11

10

        Divorced

6

9

13

11

17

        Household income $100,000+

11

7

7

4

7

SOCIOECONOMIC STATUS a

        High

17

17

20

8

11

        Middle

50

52

44

45

49

        Low

33

32

36

47

39

HIGH-SPEED INTERNET ACCESS LOCATION

        Home

85

79

72

59

61

        Work

86

83

81

73

71

a Combined measure based on income, education, and occupation.

Note: Heavy = weekly or more; Moderate = monthly but less than weekly; Light = less than monthly

Source: Online Publishers Association (OPA), “From Early Adoption to Common Practice: A Primer on Online Video Viewing,” February 2006.

Exhibit 7: How Video Viewers Engage in Use of Online Video (%)

Total

Men

Women

Age 18–29

Age 30–49

Age 50–64

Receive video links

75

75

75

76

77

71

Send video links to others

57

59

54

67

55

45

Watch video with others

57

58

57

73

58

34

Rate video

13

15

10

23

11

4

Post comments about video

13

15

10

25

9

5

Upload video

13

16

9

20

12

5

Post video links online

10

12

9

22

7

2

Pay for video

7

8

6

10

7

3

Note: Margin of error is ±4% for all online video viewers (n=800). Margins of error for subgroups range from ±5% for male video viewers to ±8% for viewers ages 50–64. Video viewers ages 65 and older are not included in this table due to their small numbers (n=84).

Source: Pew Internet and American Life Project Tracking Survey, February 15–March 7, 2007. Taken from Mary Madden, Pew Internet and American Life Project, “Reports: Online Video,” July 25, 2007, http://www.pewinternet.org/PPF/r/219/report_display.asp.

Exhibit 8: Types of Videos Watched Online (% of adult Internet users)

Figure

Note: Margin of error is ±3% for all adult Internet users (n=1,492).

Source: Pew Internet and American Life Project Tracking Survey, February 15–March 7, 2007. Taken from Mary Madden, Pew Internet and American Life Project, “Reports: Online Video,” July 25, 2007, http://www.pewinternet.org/PPF/r/219/report_display.asp.

Exhibit 9: Online Video Viewing by Age and Type

Figure

Note: Margin of error is ±3% for all adult Internet users (n=1,492). Margins of error for subgroups range from ±4% for video viewers ages 30–49 (n=615) to ±8% for viewers ages 65 and older (n=202).

Source: Pew Internet and American Life Project Tracking Survey, February 15–March 7, 2007. Taken from Mary Madden, Pew Internet and American Life Project, “Reports: Online Video,” July 25, 2007, http://www.pewinternet.org/PPF/r/219/report_display.asp.

Exhibit 10: Dislikes about Online Video

Figure

Note: n=1,000 ages 18+.

Source: Synovate commissioned by ClipBlast!, February 2007.

Exhibit 11: Motivations for Uploading Videos

Figure

Source: McKinsey survey of 573 users of four leading online video-sharing sites in Germany, October 2006.

Exhibit 12: U.S. Internet Users Who Create User-Generated Content, February–March 2007

Figure

Note: User-generated content signifies creating own entertainment through editing own photos, movies, and/or music.

Source: Deloitte & Touche USA LLP, “State of the Media Democracy,” conducted by Harrison Group, provided to eMarketer, April 16, 2007.

Exhibit 13A: Online Video Advertising Spending, 2001–2011 (in millions)

Figure

Source: Paul Verna, “User-Generated Content: Will Web 2.0 Pay Its Way?” eMarketer, June 2007.

Exhibit 13B: Worldwide User-Generated Content Advertising Revenues, 2006–2011 (in millions)

Figure

Note: Includes ad revenues at user-generated video sites (e.g., YouTube), photo-sharing sites (e.g., Photobucket), and social networking sites (e.g., MySpace, Facebook).

Source: Paul Verna, “User-Generated Content: Will Web 2.0 Pay Its Way?” eMarketer, June 2007.

Exhibit 13C: U.S. User-Generated Video Streams and Associated Advertising Revenues, 2006, 2007, and 2011

Streams ($ in billions)

Ad Revenues ($ in millions)

2006

12.4

216

2007

28.5

515

2011

49.0

956

Note: Includes all video viewership and associated advertising revenues from online videos served by user-generated online video sites.

Source: Paul Verna, “User-Generated Content: Will Web 2.0 Pay Its Way?” eMarketer, June 2007.

Exhibit 13D: U.S. Online Video Advertising Spending Growth and Share, 2006–2010 (% increase vs. prior year and % of total online ad spending)

Percentage Change (%)

Share of Internet Total (%)

2006

82.2

2.6

2007

89.0

4.2

2008

67.7

6.0

2009

53.8

8.5

2010

45.0

11.5

Source: David Hallerman, “Internet Video: Advertising Experiments and Exploding Content,” eMarketer, November 2006.

Exhibit 14: Types of Online Video Advertising

Figure

Exhibit 15A: Estimated Current YouTube Revenue

Total video streams

100,000,000

Total video streams per day

Streams on YouTube

66,666,666

At least 2/3 of videos seen on YouTube, rest embedded on other sites

Page impressions

66,666,666

1 video per page, 1:1 ratio

Ad impressions

66,666,666

1 ad per page, 1:1 ratio

Pages sold at $5 CPM

3,333,333

5%

Revenue @ $5 CPM =

$16,667

Pages sold at $2 CPM

6,666,667

10%

Revenue @ $2 CPM =

$13,333

Pages sold at $1 CPM

23,333,333

35%

Revenue @ $1 CPM =

$23,333

Pages sold at $0.75 CPM

23,333,333

35%

Revenue @ $0.75 CPM =

$17,500

Pages sold at $0.50 CPM

6,666,667

10%

Revenue @ $0.50 CPM =

$3,333

Pages sold at $0.25 CPM

3,333,333

5%

Revenue @ $0.25 CPM =

$833

Subtotal revenue from display ads

$75,000

Subtotal revenue from homepage sponsorship ads

$175,000

Total daily revenue for YouTube from advertising

$250,000

Total monthly revenue for YouTube from advertising

$7,500,000

Source: Ashkan Karbasfrooshan, “YouTube IS Wildly Profitable—No Doubts about It,” Hipmojo.com, September 2007.

Exhibit 15B: Estimated Short- and Long-Term YouTube Revenue

Now

Conservative

Expected

Aggressive

Monthly video streams a

2,000,000

2,000,000

2,000,000

2,000,000

2,000,000

Percentage with ads b

10%

20%

30%

40%

50%

Videos with ads

200,000

400,000

600,000

800,000

1,000,000

Percentage of ads watched c

33%

40%

50%

66%

75%

Total ads watched (in thousands)

66,000

160,000

300,000

528,000

750,000

CPM

10

20

30

40

50

Monthly revenue

$660,000

$3,200,000

$9,000,000

$21,120,000

$37,500,000

Annual revenue

$7,920,000

$38,400,000

$108,000,000

$253,440,000

$450,000,000

a Based on Comscore 1.7 billion in May.

b Ads currently only on partner videos.

c 75% in recent tests.

Five Years From Now

Conservative

Expected

Aggressive

Monthly video streams a

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

Percentage with ads b

50%

55%

60%

65%

70%

Videos with ads

5,000,000

11,000,000

18,000,000

26,000,000

35,000,000

Percentage of ads watched c

33%

40%

50%

55%

60%

Total ads watched (in thousands)

1,650,000

4,400,000

9,000,000

14,300,000

21,000,000

CPM

10

20

30

40

50

Monthly revenue

$16,500,000

$88,000,000

$270,000,000

$572,000,000

$1,050,000,000

Annual revenue

$198,000,000

$1,056,000,000

$3,240,000,000

$6,864,000,000

$12,600,000,000

a Based on Comscore 1.7 billion in May.

b Ads currently only on partner videos.

c 75% in recent tests.

Source: Henry Blodget, “Analyzing YouTube’s Revenue Potential,” Silicon Valley Insider, August 2007.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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