A while back, we reached out to a guy in Dallas about some land he owned.
It went nowhere, because it was a hassle… and he was making too much money from dishwasher repair videos he filmed a decade ago.
That guy is exactly why I love YouTube.
So give me two minutes to nerd out, and you’ll understand why YouTube is practically unbeatable.
The 3 ways YouTube cracked the code
YouTube started as a couple of dudes above a pizza place in San Mateo. By 2006, Google bought it for $1.65 billion.
The crazy part is, it wasn’t even really breaking even until 2015, at $4B a year.
It took three major fixes to crack the code:
Fix 1: Paying people who wanted to sue them
In the early days, Viacom sued them for over a billion dollars for pirated clips. (Viacom was actually uploading the stuff themselves, but that’s a whole other story.)
So Google build “Content ID”, that recognizes copyrighted material when someone uploads it. But the best twist was, instead of taking the video down, the owner can click a button and start collecting the ad money.
By 2014, that system had paid rights holders over a billion dollars. And instead of playing Whack-A-Mole, YouTube keeps their whole library available.
This happens on my channels – people rip off my stuff, but I get paid instead of them.
Fix 2: Stop rewarding clicks
Before 2012, the algorithm rewarded whatever got clicks, so of course it was swamped with clickbait.
Then they switched to rewarding retention — how long people watch. Because the longer people watch, the more ads YouTube can show them, and that’s how everybody gets paid.
The first number we look at on every one of my videos is retention.
Fix 3: Only paying when they got paid
Netflix spends billions of dollars a year on content they hope people will watch. YouTube gets hundreds of hours uploaded every minute for free.
Creators keep 55% of the ad revenue on their videos, so they want to make the best stuff possible.
But if a video makes nothing, YouTube pays nothing.
Quick ad break, then I’ll put it all together for this dishwasher guy.
TOGETHER WITH MY COMPANY BEDROCK QUALITY OF EARNINGS
A real example of why QoE reports matter:
A seller said his services business did $4M in EBITDA.
Turned out $600K of that was add-backs, and $220K of those were costs the new owner would still have to pay.
So the real EBITDA was $3.4M. At a 5x multiple, that’s a $3M difference in price.
This is the kind of thing Bedrock is built to find. If you’re buying a business, a QoE report is worth it.
Bedrock does flat-fee Quality of Earnings reports for buyers, in 2–3 weeks, for deals from $1M to $40M.
Before you sign, talk to Will.
Why dishwasher guy is rich
The model is this:
This guy makes genuinely helpful dishwasher repair videos.
Because they’re helpful, more people watch all the way through.
Because people watch all the way through, YouTube surfaces it to lots of people.
Because lots of people see it, it’s valuable ad space.
YouTube sells geotargeted ads to local appliance repair shops.
Everybody wins. The local appliance shop gets in front of people with broken appliances. YouTube gets their ad dollars. And the guy in Dallas keeps collecting checks for videos as long as dishwashers keep breaking (read: forever).
Of course, it’s the kind of thing that only works when the numbers are YouTube-level big.
But when it works, it really works.
Thanks for reading!
Michael
P.S. If this was interesting, I did a 24 minute deep dive video about why YouTube always wins, right here.
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