YouTube's algorithm is at the heart of the most popular online video website in the world. What determines its future success is actually the most secretive part of the website. This black box is the algorithm. This mathematical formula determines what content you see. It’s similar to the Netflix algorithm which suggests new movies and TV shows to watch. However, the YouTube algorithm is much more powerful because it has a much wider swath of potential videos to choose from. What is popular on YouTube is not only up to the viewers, but it is also up to the algorithm.
This is a positive and negative for stakeholders. It means YouTube has a level of control over its website, which can prevent it from promoting content which is unsustainable. What I mean by that is YouTube can make sure content which isn’t advertiser friendly gets less exposure. This is great for YouTube because it needs advertisers to make a profit. On the negative side, this means YouTube can destroy itself if it has poor execution. If YouTube has too much caution on what gets exposure in order to adhere to advertisers’ demands, it can ruin the motivation of content creators. The type of content which is borderline advertiser friendly is usually the content with the most popularity. YouTube needs to work with creators to avoid making them quit using the service.
The great part of this situation is YouTube advertisers don’t have absolute power over YouTube since the website attracts so many eyeballs. No single advertiser determines YouTube’s fate and advertisers need to work with YouTube because there aren’t many other options. The other great part of this balancing act is YouTube pays out creators in its partnership program. This means they have their own financial reason to stick with the platform. YouTube can change its terms and conditions without having the creators leave. Creators would have to form a union in order to give YouTube meaningful backlash.
Besides determining what YouTube’s algorithm looks like YouTube also has the decision of how to administer its changes. It is similar to the Fed. The Fed can either decide to explain policies or it can keep shut about what it is thinking. This forward guidance effects markets more than actual decisions. YouTube can decide to tell creators what the algorithm changes are or it can keep quite. The current policy is to keep quite.
The reason why YouTube keeps quite is twofold. The first is for competitive reasons. It doesn’t want Facebook to know how it makes its ‘secret sauce.’ The second reason is to avoid controversy. If YouTube decided to limit the exposure of a category of videos, these creators would organize a backlash against YouTube. They would also immediately stop making videos, instead of slowly realizing they have to make a change because they aren’t getting as many views. If it takes time for these types of creators to realize they are being limited, they will have less power to complain about the change. They also won’t have proof of why their views declined, so some people won’t believe them. If YouTube made it explicitly known that it was limiting alt-right channels, the outrage would be unbelievable. I’m not saying YouTube should limit these channels, but if it does, the best way is to make the change as least noticeable as possible to avoid controversy.
The reason YouTube would want to tell creators about some of the changes is because many complain about them which gives YouTube bad publicity such as the trending hashtag #YouTubeIsOverParty. YouTubers want to know about the changes because they rely on the website for their income. They want to be able to react to the changes before they happen, so they don’t lose revenues.
If YouTube decided to switch to informing creators about changes, it could get the changes it wants to the website without actually making any. For example, YouTube could tell creators it will feature longer videos. Then everyone will make longer videos and there will be no need to adjust the algorithm. This type of change would make the process open to creators without causing many complaints or opening its black box up to the competition.
The question investors have to look at is what YouTube should aim to be to receive the most sustainable traffic and profitability. I think YouTube should de-emphasize click-bait titles and pranks. It needs to support long form content which tackles big issues because that never goes out of popularity. It’s better to focus on the long term than short term bursts. Slapstick comedy is what made Vine gain and lose popularity quickly. YouTube also needs to support all political perspectives and avoid enforcing political correctness. YouTube will not follow through on this concept as it has shown to be de-monetizing some conservative channels.
The algorithm will never be perfect. A perfect scenario would be having a person look through the videos and curate the best ones. However, YouTube can put its thumb on the algorithm. One example would be promoting political videos around election season. This will naturally happen because it will be where the traffic is, but YouTube can push it further. That being said it doesn’t want all creators to follow the trends because it would be outside of their comfort zone.
Conclusion
YouTube will be popular for the foreseeable future, but investors take a microscope to engagement metrics to see the trends. YouTube needs to support sustainable content to keep investors happy over the long term. It should do the best possible outreach to creators in order to keep them making videos. In order to foster relationships with advertisers it should encourage partnerships with creators. It took a step forward towards doing this by recently buying FameBit which does just that. Finally, YouTube needs to foster free-speech which means not banning the channels which aren’t politically correct. YouTube has shown us no evidence that it plans to do this making it an executional headwind to traffic.