How Does YouTube Make Money?

Introduction

Making money on an internet endeavor is certainly 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 they get, it is hard to turn all the traffic into physical monetization, not unlike similar hurdles other large endeavors like Facebook continue to go through.

Venture Capital

Initially, a venture such as YouTube that requires large start up 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 start up fees, and sometimes beyond start up. These investors are pivotal because without their large capital often an internet endeavor cannot be initally funded, or cannot be sustained past infancy stages. YouTube continues to live largely off such capital, but this cannot last forever and other avenues must be considered in the future.

Advertising

A method of earning revenue in the meantime is of course through advertising, but this isn't always fitting to pay large bills. Even with all the traffic and individual page views YouTube receives, 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, and this premium business advertising model will be one of the methods that lie at the heart of YouTube's future fund raising. 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 point is paid out accordingly for each ad visible on the site.

Theoretical Money

Until YouTube finds 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 that 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. Other big time sites such as Facebook run off a similar model, and their money remains theoretical until owner Mark Zuckerberg decides to accept an offer-in reality as it stands, the site only clears several million a year, much of which must be re-routed to pay for costs of operation.