YouTube is definitely not your father's method of sharing video footage. The company has amassed a collection of user generated content, thousands of short films and television episodes, and hundreds of full-length movies. Serving more than two billion videos a day, it has become the clear leader in online video sharing. YouTube primarily earns revenue by selling ads on its homepage and search results pages, as well as within its videos. It also charges users to watch certain videos through its YouTube Rentals service. The company was founded in 2005 by Steve Chen (former CTO) and Chad Hurley (former CEO). Today it is a subsidiary of Internet search giant Google.
Google reported that YouTube's revenues more than doubled in fiscal year 2010. The increase was likely due to YouTube's growing portfolio of full-length movies and TV shows from Hollywood. Advertisers no doubt prefer to sponsor professional content over awkward (and/or lewd) homemade videos. The addition of such content placed YouTube in direct competition with rival site Hulu. It also allowed for the 2010 launch of YouTube Rentals, which competes with services such as Apple's iTunes and Netflix. The company is relying these revenue streams in order to absorb the high bandwidth cost for storing and distributing content.
As part of these efforts to boost the quality of videos and figure out ways to better monetize them, in 2011 YouTube acquired Next New Networks. The firm helps producers increase their videos' quality, popularity, and profit potential. (For example, a Next New Networks' past client was the team behind the wildly popular "Obama Girl" video.) The purchase marked YouTube's first major step into creating original content rather than acting exclusively as a distributor.
After the Next New Networks deal closed, reports surfaced that YouTube plans to spend some $100 million on producing original content. The move will coincide with a redesign of its website, to feature more topic-specific channels similar to the longtime broadcast and cable TV format. The decision to provide original content takes some of the pressure off relying on spending big to license Hollywood content. It also means YouTube is adding television and cable providers to its growing list of competitors.
The company's continued transformation is being overseen by CEO Salar Kamangar, who replaced Chad Hurley as head of YouTube in 2010. Hurley co-founded YouTube with business partner Steve Chen; the two met when they were employees at PayPal. They conceived of the idea after being frustrated by the difficulties of sharing video files. Hurley left YouTube to work full-time on his menswear label, Hlaska.
YouTube gained notoriety during its first year, when it broadcast Saturday Night Live's enormously popular Lazy Sunday skit. NBC forced YouTube to take down Lazy Sunday after it had been viewed some 5 million times on the site. The next year Google purchased YouTube for some $1.6 billion. Google was enticed by YouTube mainly because of its potential to contribute to the Google's already formidable online advertising business. YouTube was the most expensive purchase made by Google at that point in the search giant's history.