In some ways it’s the classic Silicon Valley success story, complete with garage. Chad Hurley, Jawed Karim, and Steve Chen became friends when they worked for PayPal where Karim was one of the founders. In early 2005 they were at a dinner party to which many people had brought their camcorders. Conversation turned to how hard it was to share videos with others using the internet. That inspired the friends to set off to Hurley’s garage to write some code that would make online video sharing easy.

By February they were testing their system online and receiving a great response. The response was strong enough that in November YouTube received $3.5 million in venture capital funding from Sequoia Capital. Millions of people seem to have been waiting for YouTube. When the site launched officially, in December 2005, it already had more than a million short video clips. Later that month visitors were uploading 8000 clips a day and viewing 3 million.

By April 2006 visitors were watching 35 million videos a day. The company received another round of funding from Sequoia Capital: $8 million to expand sales and marketing efforts and build-out the data centers. In October, Google agreed to buy YouTube for $1.65 billion in Google stock. At that point YouTube visitors were downloading over 100 million videos a day. The purchase was finalized in February 2007.

Speaking at the Library of Congress in June 2008, Professor Michael Wesch of Kansas State University described the impact of YouTube. “YouTube produced more hours of video in the past six months than the three major networks have produced since 1948.”

Clearly, YouTube is an important force on the internet and in digital media but as Professor Wesch also noted, the vast majority of videos on YouTube today are short, amateur videos of three minutes or less. YouTube today is not what YouTube will be in a year or three years. The changes are driven by some powerful trends and will follow predictable patterns; Understanding them will help you get out in front of the curve.
YouTube is Already a Market

Marketers using YouTube benefit from the commercial infrastructure that is already in place on the internet and the extent to which people around the world have become accustomed to shopping online. According to Nielsen Global, as of February 2008, 875 million people worldwide have bought something online. Buying is strong across many countries.

“Among Internet users, the highest percentage shopping online is found in South Korea, where 99 percent of those with Internet access have used it to shop, followed by the UK (97 percent), Germany (97 percent), Japan (97 percent) with the U.S. eighth, at 94 percent. Additionally, in South Korea, 79 percent of these Internet users have shopped in the past month, followed by the UK (76 percent) and Switzerland (67 percent) with the U.S. at 57 percent.”

This matches up with the numbers we see on YouTube. 91 percent of YouTube users have purchased something online. 63 percent have done so within the last three months.

When it comes to direct buying influence, the numbers are lower but remember we’re considering the influence of a single site so the statistics are impressive. 35 percent of YouTube users have purchased something online that they saw advertised on YouTube and 30 percent have followed a YouTube link to make a purchase. These figures are almost certainly depressed since users include a sizeable proportion of teenagers who do not have a credit card to make online purchases.

Online purchases are only the tip of the iceberg. Many people who shop online are likely to buy offline. According to a 2007 study by eMarketer: “for every $1 in online sales, the Internet influenced $3.45 of store sales.” Our survey found that 37 percent of YouTube users have purchased something offline that they saw advertised on YouTube.

In general, the purchasing demographics of YouTube follow those for the internet as a whole. With the exception of teenagers, younger people are more likely to purchase online than older people. Men are more likely to purchase online than women. The commercial action on YouTube isn’t limited to consumers. 25 percent of visitors to YouTube have used the site for business. About half of them do so regularly or at least occasionally.

From our research we identify that YouTube’s commercial usage breaks down into three main categories. Almost half of business users are looking for more information about a subject that will help them commercially. 45 percent are seeking information about products or services to purchase and 28 percent are checking out the competition.

YouTube is already a market that you can exploit. There are some key trends that YouTube is part of and that will define what YouTube will become.