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Chelsie Timmons YouTube, Google, and the Rise of Internet VideoCapstone Case AnalysisYouTube is a video-sharing subsidiary currently on the World Wide Web. The company uses Adobe Flash and HTML5 technology to display movie and TV clips, music videos, video blogs, and amateur content posted by individuals around the world along with the big name corporations such as CBS, BBC, VEVO, and Hulu. In 2006 YouTube was bought by its current parent company, Google Inc, for $1.65 billion USD. YouTube and Google in 2007, when the YouTube, Google, and the Rise of Internet Video case was establish, was faced with the problem regarding how they would rise to the number one position in the internet video market, without jeopardizing either company’s position in the market. There were roughly four subset issues that needed to be addressed in efforts to solve the later. The first was to discover the best solution for advertising on the YouTube website. The second was the find out a way to create a long-term attachment to the YouTube videos. The third was to solve the issue regarding copyrighted material legality. And the fourth issue was to better manage the construction of the YouTube cost structure system.The problems previously addressed were all of great concern for YouTube and Google during this time. The first issue regarding advertising stemmed from the fact that “ClipBlast conducted a study finding that nearly a third of the respondents cited too many advertisements in online videos”. This information along with the fact that the “number of people who created content was expected to rise to 95 million in the US by 2011, up from 70 million in 2007”. UGC revenues would grow to “$8.175 billion in 2011 from their level of $1.6 billion in 2007 CITATION Coo09 \l 1033 (Cool, Seitz, & Mestrits, 2009) created a concern for the internet video business. Because of such a drastic expected increase in revenue, Google introduced a program to advertise alongside the YouTube videos. “The program encouraged Web site developers and blog authors to embed a YouTube video player in their sites CITATION Coo09 \l 1033 (Cool, Seitz, & Mestrits, 2009)”. There would be an option to apply skins or overlays. Each provided a different form of advertisement, the skin surrounding the player with an ad displayed above the video, and the overlay placed over the bottom 20% of the video with an 80% transparency. (Exhibit 1 will show the estimated current YouTube Revenue from these advertisements) (Exhibit 2 will show you where these revenues are forecasted to go) There were however two main concerns with this advertising initiative. “At the time of its announcement, only one hundred providers had agreed to have ads on their videos. This provided a limited acceptance, because Web sites did not have control over which videos would be shown. The second issue was that the ads were intrusive upon the viewer experience CITATION Coo09 \l 1033 (Cool, Seitz, & Mestrits, 2009)”. (Exhibit 3 will show you more of the Dislikes about Online Video) YouTube would need to find a new way to advertise without creating such an issue for viewers and web developers to capture the growing web video market.According to Cool, Seitz, and Mestrits, YouTube’s monthly revenue was around $7.5 million with the yearly revenue coming in at $90 million. However these numbers are only an estimate due to the fact that YouTube was not required to report independent financial data (Exhibit 4). The forecast for YouTube’s annual revenue is projected to be between $198 million and $12.6 billion by the year 2012 based off of their then current advertising strategy. The second issue YouTube faces is creating a long-term attachment to the site. Other competitors such as Hulu, who shows series of shows, and MySpace, who is creating the long term connection by implementing video into social network, have each done so in their own way, using mimetic behavior. Without this connection the viewers of these internet video sites will decrease. Exhibit 5 will show you the types of videos watched online in 2007. The number one watched video type is the News. The reasoning behind this is simply because news is constantly changing and thus keeps a long term attachment. During this time YouTube’s marketing efforts in finding their target market was so broad that the scope had to be scarcely spread, thus causing a challenge for long term connection with customers. The third issue is a legal one, involving copyrighted material being used on the YouTube site, this can be seen as one of the weaknesses in YouTube’s SWOT Analysis (Exhibit 6). “Of particular concern was the future of Internet video and the legal issues that were involved in the free posting of copyrighted materials”. Because YouTube had become such a large subsidiary so quickly, the Google company had “set aside almost $200 million to cover litigation costs as a part of the acquisition”. The company used this money to deal with lawsuits by legal copyright owners and stated that they were going to “poise to deploy technology that rooted out copyrighted materials, but such efforts had thus far been largely unsuccessful, marred by both false positives where legal content had been deemed to be copyrighted and significant violations that had slipped through the cracks CITATION Coo09 \l 1033 (Cool, Seitz, & Mestrits, 2009)”. This problem arose because YouTube and Google did not first look at the causal ambiguity that may form from their alliance as a company unit. The last issue faced by this dual powerhouse regards the cost structure of YouTube. At the time YouTube was “outsourcing its computer infrastructure to Limelight CDN. With monthly fees to Limelight rumored to range from $1 million to $4 million a month CITATION Coo09 \l 1033 (Cool, Seitz, & Mestrits, 2009)”, charging YouTube around $.65 per Gigabyte CITATION Mit06 \l 1033 (Ratcliffe, 2006). These costs were not well documented leaving room for speculation. It can be concluded that the control system that YouTube had implemented was not efficient. Because this outsource was costing the company so much money, sufficient action was not being taken to implement a new proper strategy.In this case, YouTube is using an Advertising Business Model and doing quite well at it. According to Huff, Floyd, Sherman, and Terjesen, this model is an extension of the classic media model providing free content mingled with advertising. Even as YouTube became a subsidiary of Google it continued to use the advertising model. This model is a good fix for the company because it allows for flexibility, something that is also mentioned in the SWOT analysis, Exhibit 6. However, although YouTube is on the right track with their model, there is still room for improvement dealing with the issues previously discussed. Though YouTube’s future today looks quite positive, nothing is certain and there are recommendations that can be made. YouTube should increase spending on research and development projects in regards to the advertising placement and convenience problem. This is going to increase their expenses, thus decrease their revenue for that year, however it will increase their long term revenue by increasing customer satisfaction. By researching and coming up with a new radical innovation, YouTube will gain first mover advantage in the internet advertising world. In order for YouTube to increase their long term attachment with viewers, they must create socially complex activities that are going to make customers have the need to return. If there is no need, customers will not buy/return, it is as simple as that. YouTube needs to look at their demographics and connect the fact that their highest percentage of online viewers is coming from the 25-34 year old range CITATION Coo09 \l 1033 (Cool, Seitz, & Mestrits, 2009). This number can then be linked to the statistics showing that the videos that age range is interested in includes comedy and music videos. By increasing the number of these clips on the site, YouTube is almost guaranteed an increase in viewers and revenue. (Exhibit 7) A Value Chain Analysis should also be conducted to identify clusters of activities that are providing benefits to customers and then be sure to keep those ideas/strategies in place. This may increase the cost of expenses as well but will also increase that long term attachment and customer return rate.The copyright concern is hard to deal with, as companies all across the industry are facing the issue of their material being plagiarized. It is a strategic risk because the outcomes with this type of issue are always uncertain, but YouTube needs to increase their R&D tactics dealing with locking copyrighted content. This will also increase expenses, but will raise their ethical standings and respects with outside companies such as CBS and BBC.The cost structure YouTube was using was drastically decreasing their revenue because the expense was so high. YouTube needs to change their strategy from unrelated to related and increase the integration of task forces between YouTube and Google to eliminate the high cost of outsourcing. In order for YouTube to succeed its goal of reaching the number one position in the internet video market, without jeopardizing either company’s position in the market, the company must reevaluate their cost strategy first and increase R&D in areas they are struggling, such as advertising, long term commitment of viewers, and illegal copyright. YouTube’s advertising business model places the company in a unique position that allows them to have flexibility while meeting the customers’ needs at no cost to the viewer. Being bought by Google has allowed a new avenue for the company as well, leaving the future looking bright for the internet video business.Exhibit 1: Types of Online Video Advertising CITATION Coo09 \l 1033 (Cool, Seitz, & Mestrits, 2009)Exhibit 2: World Wide Users Generated Content Advertising Revenues CITATION Coo09 \l 1033 (Cool, Seitz, & Mestrits, 2009)Exhibit 3: Dislikes about Online Videos CITATION Coo09 \l 1033 (Cool, Seitz, & Mestrits, 2009)Exhibit 4: Estimated Current YouTube Revenue CITATION Coo09 \l 1033 (Cool, Seitz, & Mestrits, 2009)Exhibit 5: Types of Videos Watched Online CITATION Coo09 \l 1033 (Cool, Seitz, & Mestrits, 2009)Exhibit 6: YouTube SWOT Analysis CITATION Ada11 \l 1033 (Adam, 2011)Strengths:Google is the back bone of YouTube’s structureEntrepreneur holders feel it is safe and publicly promotional to expose their content to their planned target marketYouTube has an incomparable mass and traffic sizeOwners on YouTube seek help from YouTube to promote their advertisementsYouTube serves 34 languages all over the world.Weaknesses:Earning of money from the videos has raised managerial problems. It is too difficult to track the payments that owes to the up loadersThe decreasing profits of the company are affecting YouTube services, thus altering the long term budgetFeedback/comments on the videos are not monitoredUsers have the ability to upload copyright videos or contents illegally Opportunities:Satisfied producers are uploading YouTube videos adding promotional and company profitsGoogle has a solid media strategy that promotes the YouTube channelsYouTube is comprised of several different business models, giving the ability of alternation in the business for future successThreats:The online market of broadcasting has become very tough competition, copying the YouTube interface but with a more attractive outlay“The violation of rules and regulations by the users alarms the sound existence of the stations like Youtube as the % of spam content in more than the useful one.”Google is taking away attention from the YouTube nameGovernment involvement is increasing, affecting the followers %Exhibit 7: Online video viewing by Age and Type. CITATION Coo09 \l 1033 (Cool, Seitz, & Mestrits, 2009)Works Cited BIBLIOGRAPHY Adam. (2011, September 1). YouTube SWOT Analysis. Retrieved September 15, 2011, from Free SWOT Analysis: , K., Seitz, M., & Mestrits, J. (2009). YouTube, Google, and the Rise of the Internet Video. Kellogg School of Managment, Northwestern University.Huff, A., Floyd, S., Sherman, H., & Terjesen, S. (2009). Strategic Management. Danvers, MA: John Wiley & Sons Inc.Ratcliffe, M. (2006, October 4). YouTube widly profitable? Retrieved September 13, 2011, from ZDNet: ................
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