YouTube was in existence for 18 months before Google acquired it. And it was probably just as well the search giant did, because the burgeoning online video site was massively expensive to run, and there wasn’t any sign of profit being made any time soon.
Google Vs. Viacom
The Google vs. Viacom legal battle is rapidly approaching its crescendo, with both sides likely to meet in court and tell their own side of the story regarding the copyright infringements that formed a big part of the site’s early days.
As part of the recently-revealed legal documents, confidential profit and loss information was uncovered. Which NewTeeVee has used to build a picture of how YouTube was financed before Google took the site over in October 2006.
BG – Before Google
YouTube’s co-founders – Steve Chen, Chad Hurley, and Jawed Karim – purchased the YouTube domain in February 2005. Between then and August 2006, when acquirers started being sought, they spent $11.5 million on the site.
$8 million of that total went on infrastructure, with hosting costs hitting $1 million a month between June 2006 and August 2006. The other $3.5 million was spent on paying and training employees, and on travel and costs as the founders pimped their site out to potential purchasers.
The first revenue came in December 2005, but it was a paltry $15,000. In total, YouTube pulled in around $5 million in revenue in its first 18 months, with revenues in the ‘Before Google’ period peaking at $2.5 million in August 2006.
AG – After Google
Before Google came in and bought the site for $1.65 billion in October 2006, YouTube had existed on two rounds of funding totaling around $11.5 million. Which seems meager now considering the price Google ended up paying.
YouTube was on the verge of profitability when Google took over, but the search giant decided to focus on building its user base at the expense of profit for at least a year. Google CEO Eric Schmidt wanted “to grow playbacks to 1b/day [one billion per day].” A target that was finally reached in October 2009, three years after Google’s costly acquisition.
Now, and since early 2008, Google is desperately trying to turn YouTube into a profitable part of its business. Premium content is being added to the site all the time, and adverts, and different types of adverts are steadily increasing. Although a profit is still not guaranteed.
Conclusions
I wonder how long YouTube would have survived had Google not acquired the site when it did. Sure, it was about to turn a profit, but the running costs of managing the user base could easily have outstripped revenue as time went on.
The online video world would unarguably be a vastly different place without YouTube. For better or worse.
