History of YouTube

YouTube's early headquarters in San Mateo

YouTube's headquarters in San Bruno from 2006 to 2010

YouTube  is a video-sharing website, created by three former PayPal employees in February of 2005, on which users can upload, share and view videos. The site was founded by Chad Hurley, Steve Chen and Jawed Karim, who were all early employees of PayPal. Prior to PayPal, Hurley studied design at Indiana University of Pennsylvania. Chen and Karim studied computer science together at the University of Illinois at Urbana-Champaign. The domain name "YouTube.com" was activated on February 14, 2005, and the website was develop
ed over the subsequent months. The creators offered the public a preview of the site in May 2005, six months before YouTube made its official debut. Like many technology startups, YouTube was started as an angel-funded enterprise from a makeshift office in a garage. In November 2005, venture firm Sequoia Capital invested an initial $3.5 million; additionally, Roelof Botha, partner of the firm and former CFO of PayPal, joined the YouTube board of directors. In April 2006, Sequoia and Artis Capital Management put an additional $8 million into the company, which had experienced huge popular growth within its first few months.

During the summer of 2006, YouTube was one of the fastest growing websites on the Web, and was ranked the 5th most popular website on Alexa, far out pacing even MySpace's rate of growth. According to a July 16, 2006 survey, 100 million video clips are viewed daily on YouTube, with an additional 65,000 new videos uploaded every 24 hours. The website averages nearly 20 million visitors per month, according to Nielsen/NetRatings, where around 44% are female, 56% male, and the 12- to 17-year-old age group is dominant. YouTube's pre-eminence in the online video market is substantial. According to the website Hitwise.com, YouTube commands up to 64% of the UK online video market.

On October 9, 2006, it was announced that the company would be purchased by Google for US$1.65 billion in stock. The purchase agreement between Google and YouTube came after YouTube presented three agreements with media companies in an attempt to escape the threat of copyright-infringement lawsuits. YouTube will continue operating independently, with its co-founders and 67 employees working within the company. The deal to acquire YouTube closed on November 13, and was, at the time, Google's second largest acquisition. Google’s February 7, 2007 SEC filing revealed the breakdown of profits for YouTube’s investors after the sale to Google. At the time of reporting Sequoia Capital’s shares were valued at more than $442 million, Chad Hurley’s at more than $345 million, Steve Chen’s at more than $326 million, Artis Capital Management at more than $83 million, and Jawed Karim’s at more than $64 million.

Time featured a YouTube screen with a large mirror as its annual 'Person of the Year', citing user-created media such as YouTube's, and featuring the site's originators along with several content creators. The Wall Street Journal and New York Times have also reviewed posted content on YouTube, and its effects upon corporate communications and recruitment in 2006. PC World Magazine named YouTube the 9th of the Top 10 Best Products of 2006. In 2007, both Sports Illustrated and Dime Magazine featured stellar reviews of a basketball highlight video entitled, The Ultimate Pistol Pete Maravich MIX. Because of its acquisition by Google, it is sometimes referred to as "GooTube."

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 dollars 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 Google AdSense[citation needed]. 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.