Nov. 14, 2022

Behind YouTube’s Multibillion-Dollar Business

The forgotten history of one of the world’s most powerful companies


Everyone has heard of YouTube, but what actually goes on there? Nora investigates the business behind YouTube with Bloomberg business and technology reporter Mark Bergen, author of Like, Comment, Subscribe: Inside YouTube's Chaotic Rise to World Domination. As he tells it, "It is the story of a business that transformed from a money pit into a raging commercial success, a pillar of the internet that made Google one of the world’s most profitable and powerful companies." For more info on our presenting sponsor, check out https://purple.com

 

Host: Nora Ali

Producer: Raymond Luu   

Video Editor: Sebastian Vega

Production, Mixing & Sound Design: Daniel Markus

Music: Daniel Markus & Breakmaster Cylinder

Fact Checker: Kate Brandt 

Senior Producer: Katherine Milsop

VP, Head of Multimedia: Sarah Singer 

 

Full transcripts for all Business Casual episodes available at https://businesscasual.fm

Transcript

Nora Ali: For Morning Brew, this is Business Casual, bringing you convos with people you know, and some you may not know yet, to make business less intimidating. Because money talks, but it does not have to be dull. I'm your host, Nora Ali. Now, let's get down to business.

It's hard to imagine life without YouTube. I was in college when it first started becoming popular, and at the time, there were a handful of videos that it seemed like everyone was watching. You know them: Charlie bit my finger, Potter Puppet Pals, Salad Fingers. But now, there are over 800 million videos hosted on YouTube offering endless ways to learn stuff and to waste time. YouTube is an enormous business two decades in the making, and yet, most of us know nothing about what actually happens on the inside. In a new book called Like, Comment, Subscribe: Inside YouTube's Chaotic Rise to World Domination, Bloomberg technology reporter Mark Bergen details the fascinating business story behind YouTube. As he tells it, "It is the story of a business that transformed from a money pit into a raging commercial success, a pillar of the internet that made Google one of the world's most profitable and powerful companies."

More than two billion people visit it every month, making YouTube the second-most frequented website on Earth, behind Google itself. Mark writes in his book that one YouTube employee called it the video scaffolding of the Internet. That checks out if you consider just how influential YouTube has been to social media and forging the engine behind the creator economy since the platform was founded in 2005. So what are the inner workings of YouTube? Why is it the platform of choice for so many creators? How do they make money? How did the algorithm shift of 2012 impact creators? What is YouTube doing about massive content moderation problems? All of this from a site that had an original motto of simply, "Broadcast yourself." We'll get into all of that next, after the break. 

Mark Bergen, welcome to Business Casual. I have a million questions for you about your book and about YouTube, but first, a quick, little icebreaker to get to know you a little better. It's called OG Occupations. What was your first-ever job?

Mark Bergen: Oh, appropriately, I was a newspaper delivery boy in Columbus, Ohio. The Columbus Dispatch, which is still going strong, I think.

Nora Ali: Really?

Mark Bergen: I think it's in print.

Nora Ali: Journalism through and through for you.

Mark Bergen: I guess so, but it was a good excuse for my parents to wake me up early in the morning.

Nora Ali: Did you ride a bike?

Mark Bergen: No, no, no, just walked. It wasn't even like the video game, it was like a walking route. I know, I know, it's not as cool. Sometimes I would throw them, but mostly, just left them on doorsteps.

Nora Ali: Gotcha. So, let's get into it. So why YouTube?

Mark Bergen: No one had done this before. There are a lot of books about Facebook; there are some great books about Twitter, Instagram. There have been books about YouTubers and creators and the creator economy, but no outsider narrative had done journalism, nonfiction, about the company. I've been writing about Google since 2015, and during that time, YouTube kind of started off as like, it was a media Hollywood story, right, in 2015. And then since then, it's become a content moderation story, it's become a political story, it's become a bigger and bigger part of Google's business, and also a larger part of Google's headaches and financial troubles and political troubles over the course of the last seven years, especially since 2016. And I thought that that story was really interesting. There's like this whiplash where people inside the company went from being "We're the underdogs taking on Hollywood, we're sort of like seen as this beloved brand," to "Oh my god, we're being kind of equated with Big Tobacco." And that to me was the essence of a really great story.

Nora Ali: Can you go back to the beginning? What do you mean by, it was a media Hollywood story? Was it just trying to compete in the world of entertainment first?

Mark Bergen: So YouTube was started in...the short version of the history, 2005, a few months after Facebook. At the time, MySpace was the hottest thing online and this was part of this, like, what we call Web 2.0, right? The first wave of companies where the actual people using the internet were actually creating things. YouTube, early on...for a long time, it was not profitable. It hadn't really settled into its business model, it hadn't settled on creators as the center of YouTube, and it was this big threat to media. It's weird to go back and think about that, but Viacom, which owns MTV and Comedy Central, sued YouTube in 2007, a few months after Google bought it, for a billion dollars, saying they were stealing copyright IP and basically accused them of being pirates.

Newscaster: Viacom says it's losing a fortune from copyright infringements by the video-sharing site YouTube. YouTube is owned by Google, so Viacom is suing Google for not protecting copyrighted material.

Mark Bergen: For a long time, this was YouTube's, and still is really...their mission statement and a lot of their business focus is like, we are taking time away, we are building this new type of audience from traditional media. We're giving people...where there are no gatekeepers. And to a lot of media, that was a scary story. This is this free video service that is basically inverting their business model. And then there were a lot of studios that came up in Los Angeles that were trying to reinvent the digital studio model, and we can talk about that a lot, like talent management. YouTube was, and still is, a really fascinating like media Hollywood story.

Nora Ali: I'm curious why it's flown under the radar, why people don't know more about it. You write about the fact that YouTube is everywhere, it's used by two billion people every month, but very little is known about the actual business behind it. Why do you think that's the case?

Mark Bergen: I think there's a few reasons. One is just the way it works as a service for most people. And if you think about why, the obvious corollary here is Facebook. Facebook's had so much attention, in part from journalists and politicians. A lot of them, especially politicians, are over the age of 40, over the age of 60. How often do they use YouTube? They use YouTube, most likely, as a utility, almost like you use Google. You're gonna search for stuff, you're gonna like, "I wanna know how to cook a meal, a certain item. I wanna know how to tie a bow tie or fix a sink, whatever."

It's a much more different experience than Facebook, which is like, "I'll go on Facebook and I'll see my uncle posting weird political memes" or something, right? You don't see that, necessarily, on YouTube, unless your uncle's a really big YouTuber, so there's just a different way that it's structured. There are a lot of people that experience YouTube in the same way. They use it all the time, they use it for news, it has like a social element. The second reason is that YouTube is part of Google, it's a bigger, more mature company, it's a little savvier. A lot of my friends are now, if they're using Facebook, they kind of hate it. They always talk about how they want to use Instagram less. I don't really talk to people that are like, "I need to stop using YouTube," though. You know what I mean?

Nora Ali: Yeah, that's true. YouTube has also, in some ways, been left out of the conversation, to some extent, around Section 230, which you write about, as well. I'm going to quote something that Kevin Lozano wrote as a review of your book in The New Yorker. He wrote, "When criticized, the company turned to what has become a standard defense among the social media giants: It was merely a platform and not a publisher. But your book makes clear that YouTube has never been a neutral arbiter. The company made decisions that influenced which ideas succeeded." So, just for our listeners, Section 230 basically is a law that says platforms are not liable for the content that's actually published on their platforms. So, where does YouTube actually fit on the Section 230 debate, since we brought up lawmakers?

Mark Bergen: From the onset, it wasn't like the company came out of the gate as like, "We're a neutral platform." They...really, like a lot of the people that were working on the early policies around YouTube or sort of shaping a lot of the community and the aspects of the site, thought of it as a community, right? These were online communities, they were a community of users, they were the people that were posting and watching videos. A lot of the decisions they made were to keep them in mind and talked a lot about the health of their community. That changed when...a few things. It just became part of Google, it got bigger, global, a lot of those decisions, Google felt like they just wanted to grow. And I think that's when you started to have this turn towards being a platform...they can moderate comments, right, and they can like moderate hate speech and like harassment and all these types of categories that are not necessarily illegal speech.

But especially, we've seen recently during the pandemic, YouTube has changed the way it treats health information in videos, and I think that we could say that societally, that's been really important. What I've shown is a lot of the attempts from people, and my reporting talks about this: Inside the company, there are a lot of people that are like, "Well, we should be more proactive." There were people that still held this notion that this is a community that we want to support, and we think that, like for instance, healthcare's a good one, vaccine information, or pro-anorexia videos. But then I think the legal side, especially since Trump, has been much more reluctant to put their neck out and risk losing liability protection.

Nora Ali: We've heard, especially over the last few years, the push that Facebook and Meta has made in terms of hiring human content moderators, tens of thousands of people, but we haven't heard that as much with YouTube. What does YouTube have in place now for content moderation? What did you uncover as to how they're approaching it now?

Mark Bergen: It was around the same time. YouTube's crisis was 2017, their advertisers that year started the year boycotting the site over extremist videos, and then there was a second wave of boycotts in that fall over kids' videos, like inappropriate videos directed for children, and that spurred YouTube to go out and hire tens of thousands of contractors. To be clear, Google used that stat. They're like, "We've hired over 10,000 Google-wide." It's not clear how many of them worked for YouTube, but it was a rush, it was like their team was pretty bare bones. I talked to people who worked both as outside contractors and inside YouTube, and the consistent story there was "We were under-resourced," especially given just the scale of what they had to tackle. They have now, compared to five years ago, a more robust system—it's like, well, largely Philippines, India, Dublin, and then in California, and primarily outsourced. Same with Facebook: A lot of the content moderators are not directly working for YouTube/Google, they're working for these outsourced contracting firms that have weird names that no one's ever heard of.

Nora Ali: You mentioned some issues around kids' content, and there have been multiple child safety disasters, but some of them have led YouTube to realize they can't monetize everyone. So what are some of the changes that have happened as a result of these issues around kids' content on the platform?

Mark Bergen: There was the phrase that went around internally, like monetization's not a right, it's a privilege, not a right, and I think there's a really interesting tension inside YouTube about people that believe that and those that don't. But the major change they made was in the tail end of 2017 and that was basically...so the YouTube Partner Program was this pretty revolutionary system. It started off pretty small, actually, it was like a tight-knit group of pretty popular YouTubers and then those that were part of these Hollywood networks. And then a decade ago, they expanded that just dramatically and basically said, "Anyone that doesn't break our basic rules has a right to make money." They raised that threshold quite a bit in 2018 around, you have to have a certain number of subscribers and watch hours, and have been slowly peeling that back since then. We just saw this in September where now, they're like, "OK, we're going to start paying a lot more YouTube Shorts creators," for obvious reason, because they're trying to compete with TikTok.

Nora Ali: So we're going to take a very quick break. More with Mark when we come back. Mark, you touched on the Partner Program, so let's get into the creator side of it a little bit more. So you point out in your book that unlike other creator content-driven platforms, YouTube has a pretty robust relationship with how they pay their creators, so 55% to the creator, 45% to YouTube, and that's been since 2007. Can you put that into context, because it's been called the best Partner Program by high-profile YouTubers, including Hank Green. Why is this the best and can anyone else compete with it?

Mark Bergen: In part, it's the best because it's the only one. Facebook has been trying multiple times, but I think actually, by now, you have enough with TikTok and Twitch and Instagram. YouTube was early, but they also had the benefit of being part of Google, which is the world's biggest digital advertising company. One thing that Google does exceptionally well is run ads. I think the other side of that is what the creators give, which is that Hank Green has a relationship with his fans that's different than anyone in TV and movies. The fans are invested in the success of creators in a way that you've really never seen before. I do think that goes a long way into the success of YouTube and its creator economy. Part of that is just like, when MrBeast tells his audience to go out and buy something, they're gonna buy something. And then we see the dark side of that, right, where creators can sic their fans on other people or other creators. But I think that's a major reason, it's the creators and it's Google's machinery.

Nora Ali: You could kind of make that argument for TikTokers as well, who have a close relationship with their followers. But we've spoken to lots of TikTokers on this podcast and most of them want to succeed off-platform, because TikTok itself is not lucrative enough to be a sustainable career. They want to get into podcasts, books, merch, et cetera. From your reporting, does it feel like YouTube is different in that it can be the end all be all—you can succeed as a creator on YouTube alone and you don't have to branch out?

Mark Bergen: For a long time, YouTube internally talked about the SNL model. The whole idea of SNL is you're on SNL and then you go off and you become a movie star. This was the idea that a YouTuber would springboard from YouTube to star in TV and movies. Issa Rae has done that, to a certain extent. Lilly Singh is another really popular YouTuber...didn't translate to late night TV. There are other reasons for that. The other model that YouTube started to talk about, and this was pretty late, around 2015, 2016, it was like the Oprah model where it's like, "Build the empire here." People in the company really think they dropped the ball. There's an argument that YouTube could have built Patreon.

Nora Ali: Well, even though the Partner Program for YouTube is preferred and the relationship is preferred on YouTube over other platforms, there have been issues and complaints about algorithm changes to YouTube, so let's talk about the algorithm shift and what exactly that means. So YouTube made a series of changes to its recommendation algorithm beginning in 2012, where watch time was privileged over views. What did that mean in practical terms, and how does that impact what floats to the top?

Mark Bergen: I think that was one part of the book I wanted to get across, is YouTube is a de facto media programmer, and this was a really interesting example. We saw it almost overnight, a decade ago. They went from prioritizing views in the algorithm to watch time and engagement. And then you saw Freddie Wong, MysteryGuitarMan, some of the bigger YouTubers at the time were making these pretty elaborate...they were spending a week to make a one-minute video, and then the model became...it sort of changed the economics of it. It's much cheaper for us to do this, just like talk. Vlogging became popular...that was around the same time that video gameplay took off. So all of this major content on YouTube came from that transition to watch time; they make a lot of decisions based on the key metrics they have. And I think that's really interesting, and I wrote about this some in the book, is it's not just watch time, but what they call "valued watch time" and trying to optimize for that, which is this really squishy term that's not as easy to measure.

Nora Ali: It sounds like "time well spent" that Mark Zuckerberg says at Facebook.

Mark Bergen: Same exact thing. With YouTube, there was this, the part in the book, I talk about this, they like, the prior term they used was "nutritious and delicious," and they're like, "A lot of YouTube is delicious," right? Literally like candy. This was around the time when Khan Academy and The SciShow, Hank and John Green making these educational videos, there's a ton of pretty high-quality educational videos on YouTube. And so the idea was they were trying to algorithmically weight quality. My understanding of valued watch time now is based a lot on surveys. I don't know how often you've seen, after you watch a YouTube video, you've seen the give a star ranking? The broader point here is, certainly for you and me, it is a total mystery how this operates. I think for people inside the company, it's a total mystery, too. It is a hard problem, but at the same time, I don't think they've had a really strong articulation of what it is they're measuring and what outcome they want.

Nora Ali: YouTube was founded, invented, by three former PayPal employees, a graphic designer named Chad Hurley and two coders, Steve Chen and Jawed Karim. So you wrote that Chad had wanted to create something for everyday people; he wasn't exactly sure what that was in the beginning. So what were the early versions of YouTube? What did that look like?

Mark Bergen: A dating site was one they explored. The idea that, why else would people want to make videos or watch amateur videos online besides online dating was the thesis. They were competing with the dating idea versus the Flickr model, and the Flickr model ended up winning, in the sense that people are just going to upload photos to the internet, too, even though they're not professional photographers. I think we've come such a long way and we're now in this world of the influencer and everyone on Instagram, but back in 2005, there was not a lot of...this was a lot of skepticism about their business model, and Google Video was trying to do something similar, but didn't jump in as much on user-generated content, because they really thought, no one's going to want to watch this.

Nora Ali: Another quick break. More with Mark when we come back. Let's talk about the early types of YouTube videos that took off. You wrote about toy unboxing, beauty videos as well. Why did those do so well in the early days?

Mark Bergen: Oh yeah. Even before then, one of my favorite early stars was Brooke Brodack. It was really irreverent, goofy, doing a lot of lip synching videos and a lot of what we think of as early, viral, feel-good internet. Super creative, like "Chocolate Rain," those type of early...that was a really creative and interesting video. "Chocolate Rain" is one of the best hits, it's just genius.

Singing: Chocolate rain. Some stay dry and others feel the pain, chocolate rain...

Mark Bergen: And also, at the time, and I talked about this in the book, there were people inside YouTube who were actually curating the site. They obviously shifted about 10 years ago to the algorithm, but so much of YouTube is really people looking for, "I want to know what is worth watching," so there were actually human beings who were doing that. There were flaws to that system. But there's also something kind of beautiful about that. One fun thing they did was they literally, one day, youtube.com was just filled with "Chocolate Rain" covers. We see this in TikTok, too. It's like super conversational, where their video is having conversations with other videos.

Nora Ali: That's the thing that everyone's talking about at that time, which happens on TikTok. I miss the days when there were a handful of videos on YouTube that everyone was watching and everyone was talking about. You get that a little bit now on TikTok with like the corn guy, there's these cultural phenomena.

Corn kid: For me, I really like corn.

Host:  What do you like about corn?

Corn kid: Ever since I was told that corn is real, it tasted good.

Mark Bergen: Totally, yes. Early YouTube was the corn guy.

Nora Ali: I think that's the title of this episode: Early YouTube was the corn guy. But would you say that TikTok is the biggest competitor to YouTube now?

Mark Bergen: I do still think that television is the competitor and always has been. I think TikTok has certainly been the competitor that, unlike Facebook, is competing, not just...it's like capture the culture, but it's also paying people and it's a competitor for creative talent that has terrified YouTube, so you can see them now throwing so many resources in the Shorts. But YouTube's entire business is going to marketers and saying, "You are spending too much money on television—all the audience and the attention is here with us."

Nora Ali: It's worked for them so far. Quickly, we haven't talked about Google a whole lot. Google, obviously, acquired YouTube in 2006 for $1.65 billion. What was the impact and significance of that acquisition?

Mark Bergen: I think it kept YouTube from being sued out of existence.

Nora Ali: Why would it have been sued?

Mark Bergen: Copyright. Because I think before joining Google, they had not sorted out the copyright problem. They fixed that with Content ID, and Google just has the machine, the resources to be able to do that.

Nora Ali: What is Content ID?

Mark Bergen: Content ID is a YouTube system that automatically detects copyrighted material. In brief, they go to a copyright owner and they say, "We identified that someone else had uploaded this content. If it wasn't you, we can take it down or we'll just give you all the money from the ads." For YouTubers, it's been this bane of their existence for a long time. If you use a certain track in a song a certain length of time you have to, that gets the Content ID, you lose the money, it's very convoluted system. But for YouTube, it's worked really well because it's basically allowed TV and movies to live on YouTube. Google allowed them to scale into dozens of countries.

I talked to some people at YouTube and they're like, "In order to be successful or to get things done at YouTube, you have to know Google," which I think is true. It's a very bureaucratic, political system. It's basically like being in politics, right? You have to know who to call and know how to get resources. I think it has, at times, forced YouTube to make bad decisions, in part because of the Google philosophy that is like, "We're going to throw software at something; we need to scale." Google's not good at like people management, and I think that's been...YouTube has improved somewhat, but for a long time they were lousy at dealing with creators, and in part because it's just the way it's structured. They only hired a certain number of partner managers, and you have to be a really mega creator to even have that type of access. Most of them are left without anything.

Nora Ali: Oh wow. So at the time of this recording, at the end of October, Google had just reported their Q3 earnings, and YouTube's revenue declined 2% year over year. First time the revenue shrank since Google started breaking out those numbers for YouTube. Is this a sign of the overall market, increased competition for YouTube, maybe less of an ability to monetize? What do you think this means, this shrink in revenue?

Mark Bergen: I think it's a little bit of all of the above. I think the general sort of crappy time for being in the digital ads business, and also because of Apple. So Apple, a couple years ago, I think, they have these restrictions on ad targeting for iPhones. Facebook has kvetched about this a lot publicly. YouTube is savvier, but they're just as handicapped by this; YouTube's business has been hit. They make a lot of money off iPhones and now, they can't sell targeted ads on iPhones, and so I think that's a contributor. It is just a tougher industry and market than it was a few years ago. I imagine that the impact from TikTok is certainly there. They're pivoting now to towards YouTube Shorts and trying to get a lot more viewership there. They're starting to run ads, but that right now is not a place where there's advertising. So, they're basically taking that hit in the thesis that eventually, they'll figure out a way to really monetize Shorts.

Nora Ali: The last thing for you is a game. It's called Guess the YouTube Star. You know where this is going. So I'm going to play a clip from a very popular YouTube creator and you have to guess who it is. This might be challenging; I wouldn't be able to answer these correctly. It's also the first time I'm hearing them. Here we go. Number one...let's play it.

MrBeast: I'm in a giant circle in the middle of nowhere and this is a random subscriber and if he stays in the circle for 100 days, I'll give him $500,000. Step inside the circle...

Mark Bergen: It's either MrBeast or a really good MrBeast imitator.

Nora Ali: Yes, it is MrBeast; I think you recognize that very quickly. So he has 107 million subscribers; he joined YouTube on February 19, 2012. He has a collective 17.8 billion views on this channel. That is insane.

Mark Bergen: I think he joined when he was 12. I could be wrong.

Nora Ali: Something like that. He was an early adopter. Amazing, one for one. Number two.

Emma Chamberlain: I don't bake anymore. I actually used to bake when I was younger. When I was like 15, I used to make muffins every week and then I'd eat them throughout the week for breakfast. And like that was so cute of me as a 15-year-old, I'm so proud of myself.

Mark Bergen: Rosanna Pansino?

Nora Ali: Do you have another guess?

Mark Bergen: That's not her? I really thought it was her. I got nothin', sorry.

Nora Ali: She's done red carpet interviews recently. She's become a lot more popular in just the last few years, pretty recent...ish.

Mark Bergen: All right. Give it to me.

Nora Ali: Emma Chamberlain.

Mark Bergen: Oh yeah. I didn't really connect her with cooking.

Nora Ali: I guess she does a bunch of different lifestyle things.

Mark Bergen: Yeah, yeah, yeah. Well, strike out.

Nora Ali: She has 11.9 million subscribers, she joined in June of 2016, and she has 1.5 billion collective views. That was a tough one. Number three...let's play it.

James Charles: Today's video is going to be a truly wild, unhinged moment. The fire department is literally on speed dial ready to go, because in today's video, we are going to be melting my makeup routine, setting it on fire, you guys. I've done my makeup...

Mark Bergen: James Charles.

Nora Ali: I knew you could picture him right away. So, 23.8 million subscribers, joined in 2015, 3.7 billion views. Last one—you're doing great, Mark. Let's play the last one.

Adriene: Feeling if that feels good in your body, or you can start seated cross-legged on a block or a blanket or just on the floor. We won't be here long, just take...

Mark Bergen: Yoga With Adriene.

Nora Ali: Yes. Do you do Yoga With Adriene?

Mark Bergen: Oh yeah, of course.

Nora Ali: Yes. That was so easy for you. 11 and a half million subscribers, she joined in 2012, 1.2 billion collective views. What an OG. Amazing. So I'll say you were three for four, I'll give you 3.5 out of four. You crushed it. That was amazing. Well, Mark, this has been such an interesting conversation. It's been a pleasure. Thank you for writing the book, and thank you for joining us on Business Casual.

Mark Bergen: Yeah. Thanks for having me. It was super fun.

Nora Ali: This is Business Casual and I'm Nora Ali. You can follow me on Twitter @norakali—that's Nora, the letter K, Ali, and I would love to hear from you. If you have ideas for episodes, comments and thoughts on episodes you loved, fun segment ideas, just shoot me a DM and I will do my very best to respond. You can also reach the BC team by emailing businesscasual@morningbrew.com, or call us. That number is 862-295-1135. If you haven't already, be sure to subscribe to Business Casual on Spotify, Apple Podcasts, or wherever you listen. If you like the show, please leave a rating and a review, it really, really helps us.

Guess what? We are on YouTube. So if you've ever wondered what I look like, what our guests look like, or what anything else looks like, full episodes are available on our very own YouTube channel. That's Business Casual with Nora Ali. Again, Business Casual with Nora Ali on YouTube. Business Casual is produced by Katherine Milsop, Olivia Meade, and Raymond Luu. Additional production, sound design, and mixing by Daniel Markus. Kate Brandt is our fact checker and AB Silver is our senior booking producer. Sebastian Vega edits our videos. Our VP of multimedia is Sarah Singer. Music in this episode is from Daniel Markus and The Mysterious Breakmaster Cylinder. Thanks for listening to Business Casual. I'm Nora Ali. Keep it business, and keep it casual.