Unbundling YouTube

YouTube has been the undisputed home of video on the internet for a long time, but that title is eroding. YouTube is a successful bundle of internet video services and categories that are being unbundled by new entrants. Understanding YouTube’s bundle, where it has been unbundled, and further opportunities for unbundling provide insights into the current state of internet media and future trends.

The YouTube Bundle

YouTube is the default place to upload an edited video on the internet. New and interesting videos are being created 15+ years after launch. YouTube continues to grow revenue year after year.

YouTube’s competitive advantage is the audience, long tail of content, and search. Content that benefits the most from these advantages is safe on YouTube.

Medium length content for general audiences

Talk show clips, music videos, how-to, “lifestyle,” trailers, cooking, and sports highlights all belong to a category of “general” content that is safe on YouTube. Videos are generally medium length (between two and twenty minutes). Longer than videos on social platforms, shorter than shows on subscription streaming sites. They have a general audience and benefit from recommendations. These are the type of videos you see on YouTube’s homepage without personalization.

 

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An average YouTube homepage selection.

Youtube, like Craigslist, is the catch-all. Whenever it is not obvious where to post a video, it goes on Youtube. YouTube allows creators and companies to host and share any video they want. This value proposition is safe.

Search

Any video that benefits from search will remain on YouTube. YouTube has a monopoly on video search. How-to videos benefit the most from search followed by travel and sports. I do not foresee anyone beating YouTube at the quality of video search, because no one will beat Google at search.

YouTube has a long tail of content. Whatever you search will lead to results. If there is a video about something on the internet, it exists on YouTube. This long tail is costly, many videos don’t make back their hosting costs, but the long tail is also a key competitive advantage. No other platform can create a long tail of content as YouTube has; therefore, no other platform can have as good of search as YouTube has.

Low value-per-viewer content

YouTube is safe in places where the creator cannot make a large amount of money off an individual. Most content on YouTube is not content audiences would pay for. An audience’s attention is still valuable. People making YouTube videos for attention will always exist. Attention will always be valuable, and YouTube has a lot of attention.

YouTube will remain the best platform for monetizing videos with ads. They developed the technology and relationships with companies to create a large enough ad library. Creators who fall within strict ad guidelines will make money on their videos. Few other platforms allow creators to monetize with ads.


The value proposition in danger is “YouTube is the best place for posting all videos.”  Different types of videos perform better on different platforms.

Already Unbundled

The big change that allowed other companies to compete with YouTube is that video hosting is not as difficult a problem anymore. It is more difficult to build an audience that wants to watch video than it is to host video.

YouTube, like all platforms, faces constraints. It handles short, mobile videos poorly because of its lack of a “feed.” Livestreaming is an add-on, not a core feature. Ways of monetizing other than ads are not supported, causing creators to look elsewhere to drive revenue.

Short-form viral videos

Viral videos go viral on Twitter, Instagram, or TikTok and later get transferred in compilations to YouTube. You rarely see a non-professional go “viral” on YouTube anymore. If Charlie Bit My Finger was in 2020, it would go viral on Twitter first.

If you are trying to gain attention (go viral), lowering the friction of sharing is critical. Many viral videos are posted on every platform. YouTube has high friction to share, making it worse at creating viral videos than its competitors.

A long time ago, hosting videos was hard and platforms didn’t do it. Facebook, Twitter, websites all had to rely on YouTube to host their video. Now, it is easier to upload to social platforms (Facebook, Snapchat, Twitter, TikTok) than it is to upload on YouTube. This caused a major unbundling.

Livestreaming

Another area of unbundling is in video games. Gameplay videos were massive. The YouTube channel Machinma seemed to have a monopoly on gaming videos (back in 2008-2013). Creators were uploading Lets Plays, walkthroughs, and other gameplay videos. Streaming didn’t exist.

It turns out, this is not the natural format for these types of videos. The natural and popular format is streaming. Much of the talent in gaming is now dedicated to streaming. It provides a larger and more consistent revenue stream. Creating gameplay videos for YouTube is now an afterthought, many streamers edit stream highlights for upload.

YouTube was slow to react to streaming. It does offer the ability to stream but is rarely used. The only time I watch a YouTube livestream is when an important announcement is being made.

In early 2020, YouTube signed exclusive streaming deals with three popular Twitch streamers as well as the Overwatch League. These deals have been popular over the last year, with Mixer (Microsoft) signing exclusive deals with Ninja and Shroud, two of the largest Twitch streamers.

YouTube is competing in livestreaming, but they are not winning. They face competition not only from Twitch but Mixer, Caffeine, and Facebook.gg.

Long-form, high value-per-viewer content

High-production value shows don’t get the return on investment on YouTube as they do on subscription streaming sites. YouTube does have a subscription service called YouTube Premium, but based on the amount of content they release, it is not successful. They pivoted YouTube Premium to focus on the ad-free experience, rather than the original content.

No TV production company has made a dent on YouTube as their primary source of revenue. Internet media companies like Buzzfeed and Bon Appetit do well on YouTube but their content wouldn’t work with the structure of subscription streaming sites (high-production value, seasons).

Premium educational content has found a better fit elsewhere. High-quality educational content is worth more to a small number of people than ads are. It is specific and requires more work than a traditional YouTube video. The required return on investment for courses is higher, but so is the viewer’s willingness to pay.

I always see MasterClass ads on Youtube, and it makes sense why. Big celebrities are not going to go out of their way for some unknown and indirect payment through ads. People pay for information from the best. Giving it away for free and monetizing with ads doesn’t work well.

Potential To Be Unbundled

YouTube is vulnerable in medium length, high value-per-viewer content. These are areas where creators could make money focusing on top fans (spenders) rather than ads. Two places where this exists are subscriptions and valuable products.

Subscriptions

YouTube does not do a good job of monetizing individual audience members. As proven by Patreon, Twitch, Substack, and others, people are willing to pay more for content they find valuable.

YouTube does have a feature that allows channels to offer paid subscriptions but it is rarely used by creators (they have to enable it). For channels that do, it is unclear to viewers what the benefits of subscribing are.

Subscriptions and paid content have never been a focus for YouTube. As I mentioned earlier, YouTube Premium focuses on removing ads rather than high-quality content. There is no way (that I know of) to create paid exclusive or by-donation content on YouTube.

Opportunities remain for high-quality, medium length (two to twenty minutes long) content. This content requires more investment from creators and would be supported by viewers paying directly.

A group of YouTubers created Nebula, a creator-driven video streaming service. For $3 per month, viewers can support these creators directly and gain access to exclusive content. Nebula features some of YouTube’s highest quality creators, but is yet to truly compete with YouTube. It is added evidence of interest and opportunity for high-quality, medium length content.

A big competitor here will be Quibi, the medium length subscription video platform with shows from top talent and billions of dollars in venture backing. Quibi will compete for time currently spent watching YouTube and is a direct competitor taking advantage of this opportunity. I plan to write more about Quibi soon.

Valuable Products

Any videos related to big dollar products such as travel, cooking, beauty, fashion, and toys all could be disrupted. YouTube does a bad job of selling products in videos. I have never bought something from a YouTube video. Everyone knows the links are in the description and everyone ignores them. I assume top viewers would buy more than $20 per year’s worth of products in these categories.

Video commerce is an area that could be unbundled from YouTube. There are videos where a referral/affiliate commission could make more than the ads if the products were promoted better. YouTube added the ability to add a featured products bar; it is rarely used. Selling products through videos is an afterthought for YouTube.

Many people make money selling products on Facebook, Instagram, Twitter, and blogs. It is a serious feature of the platforms. For YouTube, this isn’t true. Ads are still the most important feature.

There is opportunities for other platforms or an entirely new platform to figure out online video selling. There is commission revenue waiting to be capitalized on by the right idea. Many platforms have minor features (TikTok, Instagram, Facebook Ads) but no platform exists for the primary purpose of selling items through video.

YouTube’s Downfall?

YouTube faces an innovator’s dilemma. They have not innovated their product in key ways, and are not able to. YouTube’s competitive advantages remain free hosting, search, and a long tail of recommendations. They will continue to focus on monetizing videos with ads. This leaves opportunities for YouTube’s unbundling by new entrants.

Social video on sites like Instagram and TikTok as well as streaming sites like Twitch and education subscriptions like MasterClass are already taking advantage of opportunities. These sites continue to grow their watch time and revenue.

There is an opportunity for more unbundling. A subscription platform for medium length videos like Quibi could be a major competitor. The continued growth of ecommerce could also create opportunities for a video platform more connected with selling stuff.

I will continue to use YouTube. It will remain a core internet site and a key piece of Google’s business. It will not have as dominate a position in internet video as it once had.

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