The Dropouts Who Invented YouTube from a Rat-Infested Office

This video is sponsored by Shopify. YouTube is the second most visited website in the world after Google. More than 500 new videos are uploaded every minute and more than a billion hours of content are watched around the world every day. But when YouTube started, uploading or even watching a video online was unheard of. And when the founders set out to change that, investors called their idea “cute” and questioned its value. Eager to prove them wrong, YouTube's founders ignored the skepticism and continued building the site, while fending off threats of annihilation from the world's largest companies. Years before YouTube launched, the founders all worked at PayPal, a once-star startup that made it possible to send and receive money online.

They never imagined they would one day start a company together, until a corporate nightmare fueled a fire inside them. In 2002, eBay, the world's largest online marketplace, bought out dominant competitor PayPal for $1.5 billion after a bitter rivalry. The decision was made after PayPal founders Max Levchin and Peter Thiel realized that their team was not working seven days a week, four years in a row. Since their launch, they had faced fierce competition from countless companies, including eBay's Billpoint payments service, and did not have the resources to fight any further. “On an emotional level it was very difficult,” Max admitted. “On a business level, it was probably the right thing to do.

The team was very tired.” After the sale, Max and Peter were clear that eBay wanted to make PayPal their own, which led them to leave just a few weeks later. When his team found out about the acquisition, they were surprised and disappointed. Some even felt betrayed and described what came next as a nightmare: eBay began treating them like factory workers. "The names of the engineers became anonymous," recalled Steve Chen, an early PayPal engineer. "It was just, 'We need three and a half engineers to work for 14 days on this project.' We don't care who it is.

We don't care who is sick. The only thing that matters to us is that this product is launched on this date and it has to be able to be monetized.” Three years earlier, Steve was 21 years old and studying computer science at the University of Illinois. Max had also attended the same university and was hiring engineers for PayPal. He didn't know many people in Silicon Valley, so he contacted Steve after a recommendation from one of his engineers. After interviewing Steve, Max quickly made an offer. Steve was interested but he had six more months before graduating. Still, he decided it was a risk worth taking and dropped out of college to start working for PayPal right away.

His family, who had moved from Taiwan to the United States in hopes that he would one day achieve the American dream, warned that his decision was too risky. "If the company fails, I can always go back to college," Steve argued. Three days after making his decision, Steve flew from Champaign, Illinois, to San Francisco, California, and then drove to Palo Alto, where he had his PayPal headquarters. Being a broke student, he couldn't afford to rent a place and slept on the floor of his friend's apartment. Steve had come a long way since those days. By the time eBay bought PayPal, he had risen from one of four engineers to a manager leading a team of more than 20 people.

And although they were given the opportunity to launch PayPal in China, Steve couldn't ignore how his team was being treated, prompting him to think about what he would do differently if he ever founded a company. In the end, Steve couldn't help but consider going into business on his own. He began talking about business ideas with two other colleagues, Chad Hurley and Jawed Karim. Chad had started working for PayPal around the same time as Steve. But unlike him, the 22-year-old didn't know anyone at the company before joining. After graduating from the University of Pennsylvania with a bachelor's degree in fine arts, Chad discovered a WIRED article about PayPal.

Intrigued and desperate to find a job, he sent out his resume hoping there would be a vacancy. Fortunately, Peter and Max got a hold of his resume and were impressed enough to fly him from Philadelphia, Pennsylvania, to Palo Alto for an interview. During the interview, Peter and Max asked Chad to create a logo for them to show off his design skills. Two days later they offered him a job as the company's first designer. Chad immediately agreed and prepared to move to Palo Alto. Being a struggling artist, Chad still couldn't afford to rent a place and he also slept on the floor of his friend's apartment.

In fact, he had so little cash that he didn't have enough money to eat until he received his first paycheck. Jawed joined PayPal a year after Steve and Chad. Like Steve, Max recruited him while studying computer science at the University of Illinois. But if he had given in to overwhelming rejection, he might have lost the opportunity. From a young age, Jawed was passionate about computers and even wrote and sold his own software. However, when he applied to the University of Illinois' computer science program, he was denied admission. "The program is complete," a letter from the university said. "You've been assigned to the ceramic engineering program." Jawed was devastated.

He had no interest in a future career in pottery. And he had only applied to the U of I because his computer science program was recognized as the best in the world. It was also where someone he admired, Marc Andreessen, co-founded Netscape: a popular web browser that dominated the market in the '90s. Eager to follow in Marc's footsteps, Jawed responded to the letter to the university, asking if they could reconsider and promising I would be a very motivated, dedicated and ambitious student. Fortunately, the university took Jawed at his word. "Being persistent really pays off," thought Jawed.

Jawed kept his promise to the U of I, right up until his junior year. Max was looking to hire more engineers and made him an offer. But like Steve, Jawed would have to drop out of college and start working for PayPal right away. Jawed, then 20 years old, thought about it for two weeks before making a decision: he would accept Max's offer and finish college when he had the chance. Jawed, Steve, and Chad ended up working together on many projects during PayPal's early days, often 80 to 90 hours a week. Over time, they realized that they worked especially well together and started talking about what they wanted to build next.

Almost every day they would chat about ideas while waiting for coffee at a shop called Dana Street next to the

office

. But they eventually stopped after Chad left to become a design consultant and Jawed followed suit to resume his studies. Meanwhile, Steve continued working on launching PayPal in China, a massive task that involved creating a new Chinese-language product that met China's strict regulatory requirements. After a few years, PayPal finally launched in China. Steve was proud of himself and his team's accomplishments, but he felt the time had come to leave PayPal. He was sure that there would be no bigger and more challenging project than launching it in China.

Furthermore, he had been dissatisfied with the company for some time. Fortunately, Steve didn't have to look for a new job for long. Facebook, a new social network that launched the previous year, recruited him as one of its first engineers. At that time, Facebook had just gone international and had more than 6 million users. And while it was an exciting place, Steve still couldn't help but think about starting his own company. "If I don't do it before I get married and have kids, there won't be another time I can do it," Steve thought. "The window is closing." Shortly after, Steve decided to start meeting with Chad and Jawed again.

As before, they talked about what each of them wanted to build next, specifically things that could be improved or optimized through technology. In the end, they decided to try to create something together, since they worked especially well with each other at PayPal. As the three of them brainstormed, the topic of someone they met on Dana Street came up: Jim Young, the founder of Hot or Not, a site that allowed people to upload their photos and let others rate their attractiveness. While Hot or Not was created for fun, it had become a dating site that led to many marriages.

Even more surprising was that hundreds of thousands of users were willing to pay $6 a month to use it, making Jim and his co-founder James Hong unexpectedly very rich. Steve, Chad and Jawed were impressed with Hot or Not. Not because of how lucrative it became, but because it was one of the first times someone designed a site where anyone could upload content that others could see. "That was a new concept because up until that point, it was always the owners of the site that provided the content," Jawed recalled. After discussing Hot or Not, the three former colleagues discussed the possibility of creating a similar dating site. site where people could upload videos of themselves instead of photos.

It was the first idea that excited the three of them, so they decided to try their luck. After creating the name YouTube, You represents user-generated content and Tube represents. a television, Steve and Jawed got to work on the engineering and Chad on the design. Unbeknownst to any of them, they would soon take on more than they anticipated: competing with one of the largest and most feared companies in the world. What we can already learn from the history of YouTube is that not all entrepreneurs grow up thinking that one day they would create a company. Most of the time, they start thinking about the idea after feeling unhappy and unchallenged in their daily work.

From there, they often spend countless hours thinking about what product or service they can offer and are overwhelmed by the sheer amount of logistical and upfront costs. Fortunately, times have changed and there are now online resources that provide useful information. In fact, Shopify, the sponsor of this video, has a blog offering free education, tips, and inspiration. Anyone can access their blog to learn about top trends, business ideas that require less logistics and startup costs, and how exactly they can take their idea to market. Shopify also offers an affordable, easy-to-use commerce platform that allows anyone to create, design, and manage an online store, regardless of their technical or design capabilities and experience.

Additionally, Shopify helps entrepreneurs with 24/7 technical support, offering built-in marketing tools such as email campaigns and Google and Facebook ads, and analytics tools to gain insight into sales. sales, website traffic and customer demographics. If you're an aspiring entrepreneur, you can learn more about low-investment business ideas by visiting shopify.com/hook2 or clicking the link in the description below. Difficult decisions were made to start building YouTube. Jawed was pursuing a master's degree in computer science at Stanford University and decided to try to balance his studies and his work. Meanwhile, Steve submitted his resignation on Facebook after working there for only a few weeks. "You are making a big mistake!" Matt Cohler, Facebook's vice president of product management, warned. “You're going to regret it for the rest of your life.

Facebook is going to be huge! Steve listened to Matt, but made it clear that his decision was final and headed to Chad's garage to start building YouTube. Soon after, Steve, Chad, and Jawed quickly realized that creating a video dating site was easier said than done. At the time, it was impossible for anyone to watch multiple videos from one browser as the files were too large for websites to host. In fact, watching just 50 videos of 20 megabytes each consumed 1 gigabyte of bandwidth, exceeding most websites' quotas. It was also difficult for most people to download and then watch videos from their computer.

There were hundreds of different file formats, known as codecs, which required the installation of the appropriate video player that could run on your operating system. But eventually, Steve, Chad, and Jawed realized they could take advantage of a new version of a web browser plug-in called Flash Player 8. The Flash Player 8 codec reduced video files to a fraction of their original size and made them playable. instantly from a browser. . And since it was free, 98% of computers used the plugin. For Steve, Chad, and Jawed, it made sense to try to find a way to allow people to upload a video of themselves to their site, transcode any possible video codec to Flash, and then allow other people with theFlash plugin watched the video. online videos.

After a lot of trial and error, Steve, Chad and Jawed did it. But soon after they discovered a potentially huge problem. Google announced that it would launch a free video hosting site called Google Video. Google Video was intended to allow anyone to submit videos and choose whether others could view them for free or by paying for access. However, the videos had to meet certain requirements to be approved, including uploading in specific codecs, not infringing any copyrights, and not violating any policies. Steve, Chad, and Jawed feared that Google might perceive YouTube's technology as a threat and weren't sure if they should launch it anyway.

But after thinking about it more, the three founders decided to do it anyway and see what happens. A month later, YouTube went live. The site allowed people to upload videos of themselves and select random videos to watch next. To promote the site, Steve, Chad, and Jawed introduced it to all the writers who have worked for WIRED. Unfortunately, none of them were interested in checking it out. Worse yet, no one was using it. Desperate to find users, the three founders posted on Craigslist asking women to upload videos of themselves for $20. No one responded. Thinking that videos of anything would be better than nothing, Jawed began uploading videos of airplanes and then of him at the zoo.

And although he, Steve, and Chad admitted that it didn't make any sense, I noticed that shortly after, people were finally uploading content to the site. However, they were not the type of videos they were expecting. People uploaded videos of their cats, dogs, vacations, and pretty much anything personal. "I'm getting depressed," Steve admitted. "There are not that many videos that I would like to see." Chad and Jawed were just as disappointed as Steve. But ultimately, the three decided to turn YouTube into a general video site and, once again, see what happens. When they did it, no one took them seriously.

A month after the decision to switch, the new version of YouTube was launched, allowing users to upload videos in any codec, receive a link to share their videos and, unlike before, select what types of videos they wanted to watch, instead of being randomly chosen. Users could also embed videos on other websites, which caused a surprising phenomenon. Tons of users came to the site from MySpace, which at the time was the largest social network in the world. The three founders quickly realized that people were uploading personal videos of themselves to YouTube and sharing them on their MySpace profiles.

At the time, MySpace was one of the first social networking sites where users could share their personal photographs. Photography was becoming more mainstream as digital cameras became more affordable, so they were no longer just for photographers, and more mobile phones were now being made with cameras. With YouTube, they finally found a way to share personal videos, since no other site allowed it and the videos were too large to send via email. A few months later, the number of users, videos uploaded, and YouTube views per day skyrocketed from 0 to thousands, resulting in having to pay astronomical prices for more bandwidth.

At first, YouTube could only afford the costs because Steve kept charging them on his credit card and begging his bank to increase his limit. But after several more requests, the bank cut off contact with Steve. In addition to finding a way to get more bandwidth, Steve, Chad and Jawed needed to hire more engineers. They had managed to convince some of their PayPal colleagues to help them, but they were only able to do so for a short time as they were not paid. Knowing they couldn't scale on their own, they decided it was time to raise capital, especially as YouTube's metrics started doubling every week.

But when they tried, investors quickly dismissed them, calling YouTube “cute” and questioning its value. The three founders were taken aback but decided not to give up and look for capital elsewhere. Fortunately, his perseverance paid off. An opportunity came that same month when they least expected it. One day, Jawed attended a barbecue hosted by Mike Greenfield, PayPal's first data scientist, and ran into Keith Rabois, PayPal's former vice president of business development. When they caught up, Keith asked Jawed what he was working on. Jawed told Keith about YouTube and how transcoding, sharing, and embedding videos worked. Keith was so impressed that he sent a link to the site to his friend Roelof Botha, former CFO of PayPal and partner at Sequoia, one of the world's largest venture capital firms that backed legendary companies like Apple.

When Roelof visited YouTube, he decided to give it a try. They gave him a digital camera and he recorded videos of their honeymoon, but he never found the opportunity to share them. Naturally, he wanted to see if it was possible on YouTube. “I went on the site, uploaded the videos, got a URL and immediately emailed them to friends and family,” Roelof recalled. "It was an eye-opening experience." Roelof was so impressed with YouTube that he contacted Steve, Chad and Jawed to set up a meeting. He was curious to know more about the site and evaluate whether it was worth investing in or not.

The three founders were delighted and quickly put together their first presentation, highlighting what problem they were solving and their solution, how they planned to generate revenue. through ads and its user and video metrics, which continued to double each week. After the meeting, Roelof was convinced that YouTube could be the leader in user-generated content, especially after discovering that Google Video was targeting Hollywood content, such as TV shows and movies, and planned to make users pay for the content. access. Roelof quickly wrote a memo to his partners at Sequoia, explaining why YouTube was worth investing in. Collectively, they agreed to put up $3.5 million for a 30% stake and allow the team to work in their

office

instead of Chad's garage.

When word spread about the deal, investors began mocking Roelof and his partners. "There were so many people who had negative opinions about the company at the time... A lot of people made fun of me for making that investment, saying, 'Online video had been tried and failed.' There was a lot of skepticism about the business,” Roelof explained, probably referring to the fact that Google Video never took off. After raising their first round of capital, Steve, Chad and Jawed had to deal with more than just skepticism. They had to face one enormous challenge after another. As YouTube began receiving 8 million views a day, videos containing copyrighted content, such as television clips and music tracks, began appearing on the site.

And although the three founders were quick to make clear that it was not allowed in YouTube's terms of use agreement, they soon faced another challenge. MySpace secretly banned YouTube videos and censored any mention of the company on its site. It was later revealed that Rupert Murdoch, founder of News Corp and new owner of MySpace, had planned to launch an online video service called MySpace Video and saw YouTube as a major threat. Steve, Chad and Jawed didn't have the resources to defend themselves. They then looked up MySpace's phone number and email and encouraged people to contact the social network if they continued to experience problems.

In just a few days, hundreds of users did so and even threatened to boycott MySpace. Shortly after, MySpace lifted its ban on YouTube videos and stopped censoring any mention of the company. From then on, YouTube continued to grow and even outgrew Sequoia's office, leading them to move into their own office in downtown San Mateo. And while it was affordable, it wasn't an ideal space. There were exposed pipes in the ceiling, drab carpeting, curtains instead of walls, and a rodent problem. “The place was

infested

with rats,” one employee recalled. "Giant rats, like the size of cats!" "The executives had to take turns getting some rats out of the rat traps," another employee revealed.

Despite the many dangers, employees found YouTube a fun place to work and became close to each other, which ultimately helped YouTube face its next challenge: a legal threat from NBC Universal, one of the television networks biggest in the world. Many YouTube users were still not following YouTube's guidelines and had uploaded around 500 videos containing clips from Saturday Night Live to the site. When NBC found out, they demanded that YouTube remove every single one of them; otherwise, they would file a lawsuit. Fortunately, the YouTube team acted quickly and even created a tool that allowed any copyright owner to easily locate and flag videos that contained content that infringed their copyrighted work.

The company also partnered with Audible Magic, an audio and video identification technology company. Audible Magic's system scanned and compared videos to a database of audio and video content provided by record labels, film and television studios and determined whether they were authorized to be shared on YouTube. NBC was so impressed with YouTube's efforts that they later decided to promote their television shows on the site. By then, YouTube had gone from receiving 8 million views per day to 35 million and raised an additional $8 million from Sequoia and Artis Capital Management. Just a month later, YouTube began receiving over 100 million views per day as creators began uploading a wider variety of content, including musical covers, dance performances, short films, comedy sketches, beauty tutorials, and vlogs. .

Steve, Chad, and Jawed clearly had a lot to celebrate, but instead, they were facing even more challenges. Due to the immense growth of YouTube, they had to purchase more computer equipment and broadband connections. They also had to allocate more resources to potential litigation, as there were many disputes over whether YouTube was a copyright-infringing site or protected by a law called the Digital Millennium Copyright Act, known as the DMCA. The DMCA protects sites from liability for copyright infringement for what their users post, as long as the sites provide a way for copyright owners to report infringing content and take steps to remove it.

While YouTube did both, it remained locked in countless disputes with the world's three largest record labels: Universal Music Group, Sony Entertainment and Warner Music Group. The three constantly sent lawyers after YouTube and even threatened to kill them for videos containing unlicensed music. In the end, the YouTube team was limited and money was running out because they hadn't yet figured out how to generate revenue through ads. Steve, Chad and Jawed did not have the resources to continue fighting and agreed that it was time to sell YouTube for the company to survive. When news of the sale became known, a bidding war broke out.

News Corp, Google, Microsoft, Yahoo and Viacom made offers, as YouTube dominated the market with a 46% share. Meanwhile, MySpace only had 23% and Google 10%. Not wanting to look like PayPal after its sale to eBay, Steve, Chad and Jawed carefully considered each offer. In the end, they chose Google because they were the most flexible with the terms of the deal and agreed to let the current YouTube team run the company. YouTube engineers were also very excited to work with Google compared to other bidders. Within a week, Google closed its deal with YouTube: it bought the site for $1.65 billion. And immediately afterward, Google negotiated video and music licensing deals with several companies.

At the time, all that was known about these agreements was that YouTube would be allowed to stream certain television shows and music videos. It was later revealed that Universal Music Group, Sony Entertainment, and Warner Music Group quietly received small stakes in YouTube, which would likely end potential litigation on their part. “They were the killers,” revealed Michael Moritz, a partner at Sequoia. “Google was the savior. Nobody tells that story.” Despite favorable agreements from Google, Viacom decided to sue YouTube for more than a billion dollars, as thousands of videos of shows it owned were being uploaded to the site.

In court, Viacom argued that YouTube was created to share videos of its shows, like Comedy Central. Fortunately, YouTube recovered evidence of its plans to become solely a general video site and defended itself against Viacom's lawsuit. Under Google's leadership, YouTube launched a system called Content ID to prevent copyright infringement. When a video is uploaded, ContentID scans and compares content to a library of reference files provided by copyright owners such as record labels, film and television studios. If the system finds a match, it will flag the video and notify the copyright owner, who can decide whether the video remains posted, a portion of the video is removed, or it is blocked.

YouTube also launched its Partner Program to allow select creators to earn money from their videos based on ad revenue, allowing them to turn their hobby into a career. Not even a year later, the most successful creators were earning six-figure incomes. "It was one of the few places where you could actually make money creating something online without needing to set up advertising and sales departments on your own," CNBC noted. YouTube later implemented an algorithm that would show users video recommendations based on the channels they subscribed to and what they typically watched. Together with the creators, the algorithm made YouTube even more successful by helping to keep users on the site.

Today, YouTube is the second largest search engine and the second most visited site in the world after Google, worth hundreds of billions of dollars. With its paid memberships and new services, including YouTube Premium, YouTube TV, YouTube Music and YouTube Kids, the site has overtaken cable TV, Amazon Prime Video, Hulu, Disney+, and is said to do the same with Netflix next . YouTube users already watch 1 billion hours of videos a day, while Netflix viewers watch only 400 million. And because of YouTube's ad revenue, the site is Google's most profitable business and responsible for helping some creators make millions of dollars each month.

As for Steve, Chad and Jawed, all three started and funded startups and are known for being part of the PayPal mafia – the richest group of men in Silicon Valley.