Development process

At the beginning of YouTube in May 2005, Hurley, Chen, and Karim provided the platform to eBay sellers, who showed little interest. After discussion, they realized that they had focused on how to profit from YouTube by charging for the service in the future, while forgetting their original intention to create a user-friendly platform to share videos.

Therefore, they set aside their profit concerns and decided to “stop selling what’s created for consumers but creating what they want.” They provided “embedded service”, which allowed users to view the videos uploaded without connecting to the YouTube website. Users could set up links at their own websites and view the videos there. This decreased the number of visits to YouTube websites, which meant less opportunity to profit from commercials on the websites. In order to provide an undisturbed platform, YouTube continually turned down advertisers and the easy money in its first year until it began online advertisements in its second year.

Discovering this handy platform, a group of young internet users began video blogging in MySpace, the biggest community site globally at that time, with videos uploaded on YouTube. This was a hit in MySpace and also brought YouTube to the attention of the world.

Noticing its surging popularity after the success at MySpace, Sequoia Capital, the sponsor of Google and Yahoo, was introduced by a colleague at PayPal to solve the financial problems for YouTube with an investment of US$3.5 million (NT$116 million). This 1.5 year-old video-sharing company, YouTube, merged with Google, the well-known search engine, at a price of US$1.65 billion in November 2006. This high-profile event was the biggest merger case for Google at that time.

6.3.2. Case analysis

The value creation and innovation processes for YouTube are divided below into sections for further discussion according to innovation dynamics.

6.3.2.1. Competence set analysis

The competence set of YouTube in the beginning stage consisted of its three founders’ knowledge, skills, capability, and of course their resources and information inputs. It seemed the founders began from only some old computers and a credit card in a shabby garage; however, information technology, the internet environment (resources), and the influence demonstrated by internet users (information inputs) were all part of the competence set of YouTube.

New human resources (eBay sellers) and new information inputs (the lack of success at eBay and the work experience of putting customers first at PayPal) were added to the competence set in May 2005, followed by internet users, led by those on MySpace, and resources (blogs, video diaries, etc.) after modifying its service in response to the lack of success at eBay.

Other investor competence sets were added after the official release of the YouTube website. Some of them were human resources, such as ex-colleagues, the consultation from Sequoia Capital, financial investment from Google and Sequoia Capital, etc., and of course the internet and media exposure (i.e., many news reports show images taken from YouTube.) Changes in the competence set of YouTube are listed by time in Table 8.

Table 8: Changes of YouTube’s Competence Sets

As indicated in Table 8, the large number of users, the venture capital firm, and Google, that eventually merged with YouTube, worked with the founders in achieving the success of YouTube. These participants formed an immense set where all kinds of competences interacted and inspired one another to achieve this synergy. The competence set of YouTube is rearranged by participant in Table 9.

Time Competence sets (human resources, capabilities, skills, resources, knowledge, information input, hard work, attitude, etc.)

2005/02

Human resources: Steve Chen, Chad Hurley, and Jawed Karim Skills and capabilities: the technical background from the Information Technology Department at the University of Illinois

Resources: Hurley‘s garage and one credit card

Information inputs: consumer influence demonstrated in 2004; the popularity of Wikipedia among internet users

Sharing: the maturity of the digital cable environment; the wide use of digital cameras

2005/05

Human resources: eBay sellers

Information inputs: eBay sellers showed little interest in YouTube for its lack of prioritizing consumer needs, which led to service modifications; the work experience of putting customers first at PayPal

2005/10 Human resources: internet users (MySpace)

Resources: blogs and video diaries in the digital environment 2005/11

Human resources:ex-colleagues

Resources: funding; the recognition of YouTube’s potential by Sequoia Capital

2006/10

Human resources: internet user groups; Sequoia Capital

Resources: funding; circulation of YouTube videos by media and the internet;

Google

Table 9: Competence Set Analysis for YouTube Founders and Other Participants Participant Competence sets (human resources, capabilities, skills, resources, knowledge,

information input, hard work, attitude, etc.)

YouTube founders

Human resources: Steve Chen, Chad Hurley, and Jawed Karim Skills and capabilities: the technical background from the Information Technology Department at the University of Illinois

Resources: Hurley‘s garage and one credit card

Information inputs: consumer influence demonstrated in 2004; the popularity of Wikipedia among internet users

Many internet users

Human resources: eBay sellers, bloggers on MySpace, blog fans

Capabilities: using the internet, sharing information, recording and uploading videos, etc.

Sequoia Capital

Human resources: the connection from previous investment in PayPal led Sequoia Capital to YouTube

Resources: funding, expertise in operation and management, experience in bargaining negotiations, etc.

Google Human resources: a large number of users Resources: funding, current search engines

As indicated in Table 9, the founders were not the only participants in the competence set. The large number of users exercised their capability for information sharing on the internet, which was also an important factor in the success of YouTube.

The contribution of resources from investors was also undeniable. Because of their funding, expertise in operation and management, and experience in bargaining and negotiations for M&A, YouTube survived its financial crises, earned user recognition and popularity, and created value.

6.3.2.2. Analysis of the charge structure

From the perspective of the charge structure, there is another important factor in the success of YouTube. YouTube accurately identified user needs in the actual domain (i.e., the need to share videos on user friendly platforms) and also the underlying desire to express oneself and the needs of attention and recognition hidden in their potential domains. The charge structure for each participant is listed in Table 10.

Table 10: Analysis of the Charge Structure

Participant Charge structure（including actual domains and potential domains）

YouTube founders

Intention to solve video-sharing problems A taste for sharing

Intention to succeed in business Video provider Desire to share

Desire to express oneself and be recognized

Video reviewer

Boredom; the charge to release boredom through the internet Satisfying one's curiosity; the desire to pry

A taste for new information and novel things

Investor/acquirer

Expansion of users with better service Gaining profit

Assisting targets to prove the investment decision

As a user-friendly video sharing platform, YouTube released the pain of sharing video files and satisfied everyone’s desire to express themselves by conveniently sharing their uploaded videos with the entire world. YouTube provides a platform where everyone can play the lead role in their videos. Satisfying users’ need to create and publish with the unlimited influence of the internet, YouTube released the charge of expression and attention for the large number of users and created its underlying advertising value.