Chad Hurley and Steve Chen (YouTube)

The whole world is a series of miracles, but we’re so used to them that we call them ordinary things.
Hans Christian Andersen

Chad Hurley and Steve Chen in 2007
Chad Hurley and Steve Chen in 2007

At the beginning of 2005, a dinner party of fellow PayPal (the famous e-commerce Internet site for money transfers and payments) employees happened in San Francisco, California, in the apartment of Steve Chen. Chen was born in August 1978 in Taiwan, his family came to the United States when he was eight years old, where he studied computer science at the University of Illinois at Urbana-Champaign. At this party, Chen and his friend, Chad Hurley (born in 1977 in Philadelphia, holder of a degree in fine arts from Indiana University of Pennsylvania, the first-ever graphic designer of PayPal in the period 1999-2002), spent much of the party shooting videos and digital photos of each other. They quickly uploaded the photos to the Web. But the videos? Not a chance.

Realizing that digital photographs were easier to share thanks to new Web sites like Flickr, they reasoned that a similar software package to share videos was possible, too, but… Stumbling across a need to publish a video on Internet, the friends decided to create a video-sharing website on which users can upload and share videos. And they had the means to address this need, because Chen was an exceptional code writer, and Hurley’s gift for design could give a new Web site a compelling look.

Hurley was living in Menlo Park, California, and had a garage on his property, where in February of 2005 he and Chen set to work on creating what became YouTube. On Valentine’s Day 2005, Hurley registered the trademark, logo and domain of YouTube. Two months later Chen and Hurley called for help from his ex-colleague from PayPal Jawed Karim (born in October 1979), also a very good programmer. The domain name was activated the same month. The three founders agreed (Karim took a much lower share in the company) on a few caveats: The site had to be easy to use for a person with only a minimum of computer skills, and it would not require users to download any special software in order to upload or view videos. They also made it easy for site visitors to view clips without going through a registration process and created a quick search function to access the archives.

YouTube relocated his work from the garage to a modest office, situated above a pizzeria and Japanese restaurant in San Mateo, California, and offered the public a beta test of the site in May 2005, six months before the official launch in November 2005. In the same month, YouTube got a venture-capital kick-off—an $3.5 million investment by Sequoia Capital. The first YouTube video was uploaded on 23 April 2005, (it was entitled Me at the zoo, showing founder Jawed Karim at San Diego Zoo, still available on the site).

Before the launch of YouTube, there were few easy methods available for ordinary computer users who wanted to post videos online. With its simple interface, YouTube made it possible for anyone with an Internet connection to post a video that a worldwide audience could watch within a few minutes. The wide range of topics covered by YouTube has turned video sharing into one of the most important parts of Internet culture.

The site grew rapidly, and in July 2006 the company announced that more than 65000 new videos were being uploaded every day and that the site was receiving 100 million video views per day. Hurley and Chen’s idea proved to be one of the biggest Internet phenomena of 2006. YouTube soon became the dominant provider of online video in the United States, with a market share of around 43 percent and more than six billion videos viewed in January 2009. It was estimated that 20 hours of new videos are uploaded to the site every minute and that around three-quarters of the material comes from outside the United States. It is also estimated that in 2007 YouTube consumed as much bandwidth as the entire Internet in 2000. In March 2008, YouTube’s bandwidth costs were estimated at approximately US$1 million daily.

In October 2006, Google Inc. announced that it had acquired YouTube for US$1.65 billion in Google stock. Thus the three YouTube founders became overnight multi-millionaires.

Viewing YouTube videos on a personal computer required the Adobe Flash Player plug-in to be installed in the browser. The Adobe Flash Player plug-in was one of the most common pieces of software installed on personal computers and accounts for almost 75% of online video material. YouTube accepted videos uploaded in most container formats, including .AVI, .MKV, .MOV, .MP4, DivX, .FLV, and .OGG. These included video codecs such as MPEG-4, MPEG, and .WMV.

Videos uploaded to YouTube by standard account holders were limited to ten minutes in length and a file size of 2 GB. Initially, it was possible to upload longer videos, but a ten-minute limit was introduced in March 2006 after YouTube found that the majority of videos exceeding this length were unauthorized uploads of television shows and films. Partner accounts were permitted to upload videos longer than ten minutes, subject to acceptance by YouTube.

In June 2008, video annotations were introduced, allowing users were able to add text boxes and speech bubbles at any desired location and custom sizes in various colors, optionally with a link and short pausing, allowing for interactive videos. In February 2009, the feature was extended to allow for collaboration, meaning uploaders could invite others to edit their video’s annotations. In May 2017, annotations were locked from editing, and in January 2019, they were entirely shut down.

In April 2011, YouTube Live was launched, enabling content creators and corporate/public organizations to stream live content. Concerts, sports events, and even weddings begin to appear on the site. In July 2012 the Olympics are live-streamed for the very first time.

In December 2012 “Gangnam Style” becomes the first video to hit 1 billion views. In March 2013 YouTube reaches 1 billion unique monthly visitors.

Since its early days in 2005, YouTube has grown to become a behemoth of the Internet. It is now present in more than 75 countries and available in 61 languages, with hundreds of hours of video content uploaded every minute. Now, the site has more than one billion users and has become the de facto video-sharing platform on the Internet.

Like any business, YouTube needs to make money somehow, so how exactly does YouTube do it?

Before being purchased by Google in late 2006, YouTube had declared a monthly income of somewhere in the region of $15 million, not bad for a one-year-old site. Despite this, YouTube had a long way from actually being a profitable business. But profitability wasn’t the main reason that Google snapped them up. In fact, Google saw the potential for the platform as an online video service. They surmised that by combining YouTube’s platform with Google’s enormous internet traffic, it would only be a matter of time before the investment paid off. They soon added their Google ads service to video content on the platform in a bid to bring in some much-needed revenue from the site. And it certainly worked. By June 2008, Forbes magazine reported that YouTube was making somewhere in the region of $200 million annually, mainly owing to progress in advertising sales.

In 2018 the company added the “two-ads” feature, which shows two ads at once, to beef up potential revenue from the content. But this is not the only revenue source for the platform. YouTube also pulls in money through its subscriber-based model, now called YouTube Premium (previously YouTube Red), Music Premium service, and paid TV service. As of 2019, YouTube is believed to have generated around $15 billion for Alphabet, which is about 10% of all of its annual revenue for the year, while running costs are thought to be as much as $5 or $6 million a month.

Given YouTube’s size, dominance, and market penetration, it is unlikely to fade away any time soon. But only time will tell.