How Does YouTube Make Money?

By Billy Kirk

Introduction

Making money on an Internet endeavor is an interesting exercise. It is never easy, because even with large endeavors a lot of the money or worth is theoretical. Even with a large effort like YouTube, despite all the hits it has gotten, it can be hard to turn all of the traffic into physical monetization--not unlike similar hurdles faced by other large endeavors like Facebook during its early days.

Venture Capital

Initially, a venture such as YouTube that required large startup costs relies on the collection of venture capital from various capital groups. These investors are approached by people behind large (or would-be large) efforts like YouTube and are asked to fund the initial startup fees--and sometimes beyond startup. These investors are pivotal because without their large capital, often an Internet endeavor cannot be initally funded or cannot be sustained past infancy stages.

Advertising

Advertising is a method of earning revenue in the interim, but this isn't always fitting to pay large bills. Even with all the traffic and individual page views YouTube has received, relying on small-time advertising campaigns or programs like Google AdSense will not serve to cover costs. Instead, premium advertising from individual advertisers must be garnered. The more popular the site, the more expensive advertising campaigns that can be viewed on the site--and in return the site makes more money. This is measured in CPM, and depending on the number of impressions (in the thousands), a set price is paid out accordingly for each ad visible on the site.

Theoretical Money

With some major sites, until they find a stable way to realize true physical monetization through advertising and otherwise, the large share of their worth is theoretical and dependent upon what potential investors and experts believe they are worth. Of course, whatever this number is doesn't exist until a corporation or big-time investor steps up and actually offers this money to purchase the site.