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How Does YouTube Make Money (Business and Revenue Model)

The YouTube business model

How Does YouTube Make Money?
Here’s what you should know:
  • What is YouTube, and how does YouTube work?
  • How does YouTube make money?
  • Advertising (YouTube Ads)
  • YouTube Premium
  • YouTube TV
  • YouTube’s Subsidiaries, Acquisitions, and Exits
  • YouTube’s profit and revenue
  • What is the YouTube business and revenue model?
  • YouTube’s funding and valuation

How does YouTube make money if it’s free to use? Here is a full, in-depth, breakdown of their three (3) revenue streams and the different products and services they offer, as well as the YouTube business model, their year-over-year revenue, and how YouTube works.

What is YouTube, and how does YouTube work?

YouTube, a subsidiary of Google, is a free online video streaming and social media platform.

Founded in 2005 by Steve ChenChad Hurley, and Jawed Karim, YouTube went on to get acquired by Google for $1.7 billion in October 2006. Since that time, YouTube has become the second most visited website receiving over 2.24 billion monthly users who collectively watch more than one billion hours of videos each day on the platform.

How YouTube works is: YouTube is free to use and users can watch content with or without creating an account. Although users with an account have access to features such as commenting, saving videos, uploading videos, and creating playlists.

Some of YouTube’s competitors include Twitch, Hulu, Netflix, Amazon Prime Video, and other video streaming services.

YouTube App in Apple App Store | YouTube Business Model | How Does YouTube Make Money?
Source: Apple App Store

How does YouTube make money?

According to Statista, YouTube receives over 2.24 billion monthly users who consume more than one billion hours of videos each day on the platform. To add to that, Youtube’s two (2) subscription services have racked up a combined 33 million monthly paying subscribers.

So how does YouTube make money off of all those subscribers, monthly users, and hours spent on the platform?

Below is a breakdown of how much money YouTube makes and its revenue model. Including all revenue streams and how much they charge for their services.

Here are the 3 ways of how YouTube makes money (in 2021):

YouTube has a revenue model that makes money in three (3) ways – YouTube Ads, YouTube Premium, and YouTube TV.

#1. Advertising (YouTube Ads)

YouTube makes the majority of its money from advertising. In fact, according to page 33 of YouTube’s 2020 Form 10-K, YouTube Ads brought in $19.77 billion of revenue in 2020 for the company.

As mentioned above, YouTube users consume more than one billion hours of videos each day on the platform. From that, Google’s ad network, Google AdSense, runs ads on those watched videos and, as a result, YouTube makes money.

Note: YouTube earned $19.77 billion from ad revenue in 2020.

#2. YouTube Premium

Aside from advertising revenue, YouTube also makes money through its subscription service YouTube Premium. Launched in 2018, YouTube Premium had up to 30 million subscribers by the end of 2020.

While YouTube is free, YouTube Premium is a paid service that comes with its own set of perks such as access to YouTube Music, ad-free video streaming, being able to download videos to your device, and more.

YouTube Premium Cost:

  • Student Plan: $6.99 per month
  • Base Plan: $11.99 per month
  • Family Plan: $17.99 per month

Note: YouTube Premium has more than 30 million subscribers paying monthly.

#3. YouTube TV

Another subscription service YouTube has to offer is YouTube TV. Launched in February 2017, YouTube TV had over 3 million subscribers as of October 2020.

YouTube TV offers live TV from 85+ channels as well as three (3) available add-on services: Premium Networks, Sports Plus, and 4K Plus.

YouTube TV Cost:

  • Base Plan: $64.99 per month
  • 4K Plus Add-on: an extra $19.99 per month

[ Related Article: How Does Hulu Make Money? ]

YouTube’s Subsidiaries, Acquisitions, and Exits

Aside from YouTube being acquired by Google for $1.7 billion, YouTube has had its own fair share of acquisitions as well.

To date, YouTube has made a total of 5 acquisitions.

YouTube's Acquisitions
Source: Crunchbase

YouTube’s profit and revenue

In 2020, Google, the parent company to YouTube, reported YouTube’s revenue to be $19.77 billion.

Note: Because Alphabet Inc. (Google), the parent company of YouTube, is a publicly traded company, under the Securities Exchange Act of 1934, they must file continuous financial filings with the U.S. Securities and Exchange Commission (SEC). You can find all of Alphabet’s publicly released financial reports, including annual reports, through  Alphabet’s investor section on their website.

What is the YouTube business and revenue model?

YouTube makes money through a few revenue models that they combine within their company, they are:

  • Advertising business model
  • Subscription based business model
  • Mergers & acquisitions (M&A) business model

YouTube’s funding and valuation

According to YouTube’s Crunchbase profile, YouTube has raised $83.5 million over 2 rounds.

YouTube was acquired by Google for $1.7 billion in October 2006. Today, the company is estimated to have a valuation upwards of $160 billion according to Morgan Stanley.