5 Minutes of Fame

November 5th, 2008 Digital Media, Features, Tech, Tech Features

You don’t hear about many overnight success stories in the world of the web anymore, but you don’t need to cast your mind back too far, as Drew Turney writes.

It was 2005, the tech crash long behind us. Every ad agency and marketing studio offered websites, and if they were too pricey your nephew could probably do the same thing for peanuts anyway. Few online technologies generated the kind of novelty that had gripped the world a decade before, and websites had become just more marketing noise, as passé to big investment as mines or railroads.

But the raison détre for invention — necessity — held firm, and one night two former Paypal employees were holding their regular dinner for co-workers in San Francisco.

“I was hosting the dinner in my place and people brought their cameras and phones with them and they were taking pictures and videos. It was very easy to share the pictures with one another but we found when we wanted to share videos it was a lot more challenging.”

That’s Steve Chen, whose idea to share videos would become one of the last big world-beating ideas of Web 2.0. “[Video] is a lot bigger than pictures,” he says. “We couldn’t share them easily through email, plus pictures are generally one format like a jpeg. There’s something like 220 different audio codecs and 120 different video codecs, plus you have Windows Media Player, QuickTime, Real Player and all these different formats. We realised with digital cameras coming down in price more people would be creating videos, and since they were living on their computers, they’d probably run into the same problem we did.”

The result was YouTube. Chen and Hurley started putting it together in February 2005, and it was unleashed onto the world in December 2005, a month after receiving funding from US venture capitalist Sequoia Capital. Within a year of launching, YouTube had grown enough to attract the attention of the biggest, most forward thinking company on the web, and Google purchased it for US$1.65bn ($1.76bn).

Financial markets — to say nothing of the rest of the world — were still getting used to the phenomenon where two guys could launch an idea from a garage or university IT lab and in a few short years outstrip the earnings of most the paper-based media combined (as was the case with Google).

But YouTube’s rise was even more meteoric than usual — it took longer to develop the site than for it to be worth over one and a half billion dollars (US). What did Chen and Hurley do right?

The secret, according to Chen, was twofold. First was keeping the software simple. “A lot of development work focused on some innovative things compared to other sites that were trying to do this,” he says. “We were the first site to use Flash video, which means videos play in the browser rather than asking you to download an application or forcing you to have a Windows or Macintosh machine.”

The other reason was the old Web 1.0 axiom — the way to make money was to give it away for free. To Chen, that meant not locking users to the site itself. “The ability for people to host videos on other sites is important, you can take a snippet of code, take that whole video and put it on any other site. In the first few months that was one of the strongest reasons for our success.”

YouTube’s the perfect embodiment of the post-industrial economy where an idea and a bit of code can make you a billionaire. Chen and Hurley spent the first half of 2005 building and bug testing, keeping in touch via chat clients from their respective homes about half an hour apart. The financial success of Paypal bought them the time they needed and YouTube was developed entirely out of their own pockets prior to the beta launch in May 2005. External funding didn’t arrive until November 2005 and of course, the not inconsiderable heft of Google a year later.

Did the light bulb lead to tinkering in the proverbial garage? “There was a garage involved but it was only the occasional sort of face to face meeting,” Chen says. “But creating websites has always just been fun to do. There’s not a huge barrier to entry for two people on computers to get something out there.”

Growth 2.0

YouTube isn’t the only video site on the Internet. Why is it today synonymous with online video, the way Google is synonymous with search and eBay with auctions?

“We put the early success down to three key factors,” says Mark Little, senior analyst with technology research and analysis firm Ovum, “critical success factors that YouTube has exploited more effectively than any of its rivals — effective viral distribution, light content vetting and a highly active community. No other website made it as technically quick and easy to view and upload video.”

Such ease of use combined early on with the sort of brand recognition you simply can’t buy. YouTube rode to the crest of the viral Internet wave and before long it was elevated to the exalted status of simply being online video.

User friendliness didn’t only come in the technology, however. YouTube users soon felt they owned what they did, the system merely a platform for their use, their own virtual video soapbox. “It’s interesting that the most successful player has chosen to focus on the ‘freedom’ rather than the quality ‘self-expression'”, Little says. “Metacafe has a content approval process involving a panel of 80,000 users, and both it and Google Video have a far stricter copyright infringement policy. YouTube offers uploaders a ‘post-first-and-whatever’ process, a policy that appeals to the core video sharing group of 18-24 year olds.”

It’s something Chen and Hurley were also conscious of, leveraging one of the oldest ideas about Internet content to help manage — the notion that a large community will police itself, much like Amazon’s user reviews and eBay’s feedback system.

“You can find anything you want online,” Chen says. “We don’t bar anyone from uploading content. The community points out videos that are infringing or that they don’t like and we work with the community to take them down.”

A Step Up

Of course, the millions of users and dozens of technology analysts weren’t the only ones to see value in YouTube. While it’s tempting to see Google as a huge, voracious monster buying up the entire Internet, it had only been two years since its own erstwhile arrival on the world’s big business stage with their August 2004 share float. YouTube was their most high profile (not to mention expensive) acquisition after the products that became Blogger and Google Earth, and the search behemoth had reason to be nervous as well.

“It happened very quickly,” Chen remembers of the buyout. “It took about four or five days from the first meeting with the Google team. The first time we sat down was at a diner over coffee and I was too nervous to buy anything to eat, I had coffee the whole time. But up until YouTube, they’d never made an acquisition this size and I think they were as fearful about not wanting to make that first wrong step as we were. They weren’t really sure what the secret sauce was for YouTube’s success.”

Apart from the nerves on the both sides, everyone from Google and YouTube themselves to the market thought it was a great idea. The group first met on a Tuesday, and by the following Monday the deal was in the bag. All three original YouTube founders (the third was Jawed Karim, who left the company before the takeover) did very well from the purchase. In February 2007 it was reported that Hurley and Chen were around $326 million each.

Despite the new regime, Chen says the two are still separate companies, YouTube maintaining its own office of around 70 employees. What Google has helped change is its reach. “They felt they could maintain and preserve our momentum by keeping us separate,” he says, “and it lets us leverage all Google’s resources from the research and development to the infrastructure, international and mobile teams.”

It’s international resources like those that let YouTube roll regional portals out across the world. Despite having no staff in Australia apart from those under the Google banner, YouTube Australia was launched in October 2007. While it’s on the pulse of the entire YouTube repository, a local page can mean content, promotions, etc. geared specifically to our part of the world.

The Future

So when you’ve burst the banks of being a mere technology and you’re firmly part of popular culture — even among people who don’t use your service — where else is there to go? First of all is the notion of actually unshackling YouTube from the web altogether to further broaden the audience for both participation and consumption.

“We’re pushing for ways of getting the concept out into mobile devices and the TV screen,” Chen says in explaining how YouTube is looking beyond the PC browser. “At the moment you have to go back home, connect your camera to your computer, find the file, go through the three page upload, wait 30 or 40 minutes for it to upload, type the description. It’s a cumbersome method and some of that’s not really dictated by YouTube, it’s just the technology that’s out there.

“This year we launched a few initiatives trying to get YouTube to be more watchable, making content both uploadable and watchable from outside of a desktop computer.”

A major part of that effort is the recent release of YouTube’s application programming interface (APIs) to third party developers, the possibilities for which are endless and only now being realised. One example is the game Spore, from US gaming giant Electronic Arts. Players create worlds and characters of their own design and the ability to upload a video of your creature to YouTube is built right into the game.

Last year Casio announced a line of digital cameras with the YouTube Capture Mode, a special set of parameters that optimises your video capture for YouTube upload, sidestepping all the third party repurposing and encoding tools you’d normally use. Around the same time, many consumer-level video editing suites appeared with the ability to upload your finished product to YouTube at the click of a button.

In January this year, Panasonic announced a Google and YouTube enabled TV. Using a proprietary interface on their Viera range of Internet-enabled high definition TVs, you can browse your Google Picasa photo album or search, browse and watch YouTube videos in the comfort of the lounge room instead of stuck in front of a PC.

More interestingly, business applications of the site itself are starting to make headway, initiatives that until now hasn’t made anyone (but YouTube) money, no matter how popular.

With eyeballs on your site the currency of the web, YouTube needs more people uploading and more people watching. Part of that effort was the Partner Program, a two-pronged assault on ad dollars based on YouTube’s own metrics about who’s watching what.

It’s an effort not just to collect viewers together but identify them. Prolific creators can sign up for the program and receive a cut of clicks from any ads that appear on pages where their work features. Likewise, advertisers can gear campaigns to ‘channels’ of content where YouTube producers and viewers are gathering in large numbers.

Also very much on the cards is a future where YouTube courts Hollywood. There’s already a concerted effort to pitch the virtues of YouTube to film schools, universities and other ‘professional’ content creators. It’s already the first step for many to see the latest movie trailers, and that might be the pointy end of a very bright future for YouTube.

What else is the site but an entirely new media platform that not only outstrips the reach of advertising in each global territory but doesn’t cost a cent? No wonder old media’s nervous…


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