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[ONLINE MEDIA] Gurus of YouTube (Steve Shih Chen & Chad Hurley)

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  • madchinaman
    The Gurus of YouTube How a couple of regular guys built a company that changed the way we see ourselves By JOHN CLOUD
    Message 1 of 1 , Dec 18 11:58 PM
      The Gurus of YouTube
      How a couple of regular guys built a company that changed the way we
      see ourselves

      Let's say you're in your 20s and you start your first Internet
      company. Let's say 21 months later you sell it for $1.65 billion.
      What happens next?

      At first, not much. Some of the money is tied up in escrow, and the
      traditions of modesty in Silicon Valley require a period of restraint
      before you spend in the big, life-changing way that your wealth will

      Still, the world wants to talk to you. Japanese television, Argentine
      newspapers, a bunch of French journalists and what seems like every
      news outlet in the U.S. Friends you haven't heard from in a long time
      send e-mails. Hey, how's it going? Long time no see! BTW I have this
      great business idea...

      And so even though you've just left a photo shoot with an imperious,
      name-dropping L.A. photographer and ride to the airport in a jet-
      black Escalade, when you arrive at LAX, you have to stand in the
      United Economy line because you're still flying coach. Having removed
      your shoes to get through security—an indignity you'll never again
      endure if one day you spend an inconsequential few million on a jet—
      you walk past a newsstand to see your company on the cover of Wired
      and GQ.

      "Oh, and have you seen Fortune?... Yeah, we're in there too."

      And there they are: Steve Chen, 28, and Chad Hurley, 29, two of the
      three founders of YouTube (the other, Jawed Karim, went to grad
      school last year), a couple of boy-men looking out from a magazine
      and up at themselves in real life. Then they board the plane, Steve
      way in the back and Chad closer to the front after paying an extra
      $24 for an "Economy Plus" seat.

      Such is life these days for Chad and Steve—and because they are still
      young enough to get the occasional pimple, I don't mind calling them
      Chad and Steve. They are premoguls, near magnates. They foreshadow
      but don't quite yet embody the wealth and power that accompany their
      role as the new demiurges of the online world. At a GQ party in West
      Hollywood, Calif., a few weeks ago, Al Gore tapped Steve on the
      shoulder outside the bathroom to congratulate him on the success of
      YouTube. Chad chatted with Leonardo DiCaprio, handsome and taller
      than you think and ashing his cigarette on the floor. But at the end
      of the night, the YouTube boys were hanging with the B crowd, Steve
      eating a burger (despite a disapproving glare from his girlfriend
      Julie) and Chad drinking until 2:30 a.m. with a guy who was in the
      Jackass movies—not even the main guy. Guys, you gotta know when to
      leave the party. (When Leo does.)

      But of course the party is just starting for Chad and Steve, whose
      omnium-gatherum of online videos has captivated the Web for the past
      year, at least since a Saturday Night Live digital short called Lazy
      Sunday was forwarded millions of times last December, increasing
      visits to youtube.com 83%. (If you don't know Lazy Sunday, don't tell
      anyone, particularly anyone under 30. Just quietly YouTube it now.)

      YouTube became a phenomenon in 2006 for many reasons, but one in
      particular: it was both easy and edgy, a rare combination. You can
      watch videos on the site without downloading any software or even
      registering. YouTube is to video browsing what a Wal-Mart Supercenter
      is to shopping: everything is there, and all you have to do is walk
      in the door. Want to see Mikhail Baryshnikov performing in Giselle in
      1977? A user named "goldenidol" uploaded a clip in August. Want to
      see a sure-to-make-you-queasy video of a girl snorting a strand of
      cooked spaghetti and then choking it out her mouth? You're in
      luck: "asemoknyo" put that clip on YouTube last month. All it costs
      is a few moments away from whatever you're supposed to be doing on
      your computer—and who doesn't have 30 sec. to watch that priceless
      clip of Faith Hill mouthing "WHAT?" when she lost a Country Music
      Association Award this year? (That video has been viewed at least 6
      million times.)

      YouTube is a new kind of medium, but it's still mass. Your
      grandmother could use it (a search for "grandmother" on YouTube
      yields more than 1,800 videos). But because the site doesn't
      prescreen uploads—which is a lot cheaper for Chad and Steve than
      hiring a bunch of editors to police millions of users—it ends up
      hosting a lot of out-there stuff as well: obscure bands, tear-jerking
      video diaries, "dead dog tricks" (don't ask), a "German toilet"
      (please don't ask)... The unmediated free-for-all encouraged the
      valuable notion that the site was grass-roots, community-run and—to
      use an overworked term—"viral." These are partial fictions, of
      course. YouTube controls the "Featured Videos" on its home page,
      which can dramatically popularize a posting that otherwise might
      fade. Also, the video in the top-right section of the home page is an
      advertisement, even though it doesn't always look like one. There's
      no porn on the site—overtly sexual material is flagged by users and
      removed by YouTube, usually very quickly. But there is an endless
      supply of kinda weird, kinda cool, kinda inspiring stuff there, which
      means you can waste hours on Chad and Steve's site.

      That, in turn, means advertisers want to be on YouTube, which is why
      Google paid so much for it. If even, say, 10% of the $54 billion
      spent on TV advertising annually migrates to video sites like YouTube
      in the next few years, we will pity Chad and Steve for selling for a
      mere $1.65 billion. But for now, with YouTube still unproven—it has
      never made much money, and it could be crushed by lawsuits from
      content creators whose material shows up on the site without
      permission—the blockbuster acquisition price carries a whiff of the
      late-'90s Silicon Valley gold rush. It now falls to Chad, the CEO,
      and Steve, who runs the tech side, to prove that what they created
      with Karim will not become the next broadcast.com, the video provider
      Yahoo! bought for $5.7 billion in 1999—and which now doesn't exist.

      Turning YouTube from a sensational rumpus to a profitable corporation
      will require Chad and Steve to thread the company through legal
      disputes, hire at least 100% more employees than they have now,
      negotiate with the biggest ad and media companies in the world,
      maintain their unique identity without getting swallowed up by
      Google, please shareholders, manage p.r. and flawlessly execute a
      thousand other tasks that far more experienced executives have
      flubbed. All while Chad has to make time for his wife and two small
      children, Steve needs to buy a car to replace his crappy Jeep
      Wrangler, and the broadband in the YouTube office is so slow, it
      takes forever to watch their own site. Can a couple of kids who grew
      up nowhere near Silicon Valley handle all this?

      CHAD MEREDITH HURLEY has the lanky and languorous carriage of a
      teenager who just rolled out of bed. He wears a stubble beard over a
      complexion that doesn't see enough sun, and he has a habit of pushing
      his chin-length hair back from his forehead so that by the end of the
      day it's a bit oily and Gordon Gekko-ish.

      Raised in the southeastern Pennsylvania town of Birdsboro, Chad is
      the middle child of Donald, a financial consultant, and JoAnn, a
      schoolteacher. He was an arty kid, always watercoloring and
      sculpting, which is not to say he ran with the artsy crowd. There is
      nothing affected or capering about Chad—his temperature runs so low
      he comes off at first as a dullard—and it's easy to imagine him as a
      slightly introverted, earnest boy trying to sell artwork (not
      lemonade) from his front lawn, as he did in an unsuccessful venture
      that taught him the difference between art and commerce.

      Chad was unusual in that his artistic proclivities coincided with an
      interest in business and technology. In ninth grade, he built an
      amplifier that won third place in a national electronics competition.
      By the time he was in college, he would hole up for hours online,
      doing those things boys do these days—studying Web design, playing
      games, experimenting with animation. He did not come equipped with a
      sense of entitlement or snobbery; his brother Brent, 27, told me that
      to earn money during one summer in college, Chad joined a pyramid-
      marketing scheme for knife sets. "He would come over to our friends'
      houses and cut through a soda can or something," says Brent. "One of
      our family friends, they joke now, 'Hey, you sold us these knives and
      look at you now.'"

      If it's true that people make their own luck, Chad made a lot of it.
      In 1999, he was finishing up at Indiana University of Pennsylvania,
      where he had majored in computer science before switching to graphic
      design and printmaking. ("Computer science, that was too technical,
      too mechanical for Chad," says his father Don. "He wanted to be on
      the creative side." Chad spent much of his time running for the cross-
      country team, and he was in top shape at the time. The not
      insubstantial paunch he has added since then is a source of some
      consternation.) Around graduation, Chad read an article about a new
      company called PayPal, which back then was trying to enable PDA users
      to beam money to each other. Chad sent PayPal his resume, and on a
      Wednesday evening he came downstairs to announce he had a job
      interview on Friday. The company flew him to California and asked him
      to show his skills by designing a company logo (it's still the PayPal
      logo to this day). That Sunday, PayPal's CEO offered Chad a job as
      the company's first designer. He slept on a friend's floor for a few
      weeks, scrounging money for pizza before he got his first paycheck.

      It was a propitious move; Chad had joined a firm that would soon
      abandon the handheld-payment concept in favor of something far more
      lucrative: securing online transactions. In 2002 eBay bought PayPal
      for $1.54 billion, and as an early employee, Chad walked away with
      enough to buy a few luxuries—including his Tag Heuer watch—and plenty
      of seed money for a future venture. "Either he was incredibly
      brilliant and he saw the opportunity, or he was really lucky—I don't
      know," says Ryan Donahue, who was PayPal's second designer and roomed
      with Chad for a time. "But to hit gold with your first job out of
      college is pretty rare. And then for his first company to be YouTube,
      he's gotta be a smart guy."

      Chad was also lucky to meet his future wife, Kathy Clark, at a party
      in 2000. Clark shared his interest in technology and in starting a
      family. She also turned out to be the daughter of James Clark, the
      legendary Silicon Valley entrepreneur who founded or co-founded three
      billion-dollar-plus companies: Silicon Graphics, Netscape and
      Healtheon. His daughter, 36, is an intensely private person—she was
      reticent when I visited the Clark-Hurley home in Menlo Park, Calif.,
      for a brief meal of takeout burritos in their trophy kitchen (Wolf
      range, lovely). She asked that I not reveal the names of the kids.
      Kathy and Chad have never before publicly discussed her father's
      identity. Their reluctance is understandable: Jim Clark is one of the
      valley's most revered figures, and because he runs a media-sharing
      website—Shutterfly, founded in 1999—it would be tempting to think he
      was the real force behind the video-sharing site his son-in-law was
      starting. But Chad says Clark has had only a tiny role in YouTube,
      merely offering the boys advice in 2005, when the start-up was
      seeking its initial round of funding. "Basically I have never wanted
      to mix money and family, so we haven't talked much about it," Chad
      told me.

      Chad's greatest stroke of luck at PayPal was meeting Steve Chen and
      Jawed Karim, two PayPal engineers with whom he would occasionally bat
      around ideas for start-ups. Karim, 27, enrolled at Stanford last year
      to pursue a master's in computer science, and today there's some
      tension between him and the other founders, who have become famous
      while he toils in a small, modestly furnished dorm room. Although
      Karim is named on YouTube's site as a co-founder, Chad and Steve have
      promoted a highly simplified history of the company's founding that
      largely excludes him. In the stripped-down version—repeated in dozens
      of news accounts—Chad and Steve got the idea in the winter of 2005,
      after they had trouble sharing videos online that had been shot at a
      dinner party at Steve's San Francisco apartment. Karim says the
      dinner party never happened and that the seed idea of video sharing
      was his—although he is quick to say its realization in YouTube
      required "the equal efforts of all three of us."

      Chad and Steve both say that the party did occur but that Karim
      wasn't there. "Chad and I are pretty modest, and Jawed has tried to
      seize every opportunity to take credit," Steve told me. But he also
      acknowledged that the notion that YouTube was founded after a
      dinner "was probably very strengthened by marketing ideas around
      creating a story that was very digestible."

      No company, of course, is ever founded in a single moment, and
      YouTube evolved over several months. Chad and Steve agree that Karim
      deserves credit for the early idea that became, in Steve's
      words, "the original goal that we were working toward in the very
      beginning": a video version of HOTorNOT.com.

      HOTorNOT is a dating site that encourages you to rate, on a scale of
      1 to 10, the attractiveness of potential mates. It's a brutal,
      singles-bar version of MySpace, but Karim says it was a pioneer: "I
      was incredibly impressed with HOTorNOT, because it was the first time
      that someone had designed a website where anyone could upload content
      that everyone else could view. That was a new concept because up
      until that point, it was always the people who owned the website who
      would provide the content."

      The idea of a video version of HOTorNOT lasted only a couple of
      months. "It was too narrow," says Chad. He notes that another early
      idea was to help people share videos for online auctions. But as the
      site went live in the spring of 2005, the founders realized that
      people were posting whatever videos they wanted. Many kids were
      linking to YouTube from their MySpace pages, and YouTube's growth
      piggybacked on MySpace's. (MySpace remains YouTube's largest single
      source of U.S. traffic, according to Hitwise.) "In the end, we just
      sat back," says Chad—and the free-for-all began. Within months—even
      before Lazy Sunday—investors such as Time Warner and Sequoia Capital,
      a Menlo Park investment firm, began to approach YouTube about buying
      in. Big advertisers started paying attention in October 2005, when a
      cool Nike ad-that-doesn't-look-like-an-ad of the Brazilian soccer
      player Ronaldinho went viral in a big way on YouTube. Sequoia—which
      has helped finance Apple, Google and other valley greats—ended up
      providing about $8.5 million in 2005—just in time for Steve to avoid
      having to increase his credit-card limit yet again to pay for various
      tech expenses.

      STEVE SHIH CHEN has always been something of a risk taker. He left
      the University of Illinois at Urbana-Champaign a semester and a half
      early to work for PayPal. His family was wary: "We told him it was
      risky; he just had a few months left" in college, says his brother
      Ricky, 26. "But he was determined to give it a shot." Steve was drawn
      to PayPal partly because several U. of I. alums worked there,
      including PayPal co-founder Max Levchin, who in turn was eager to
      hire Steve because of his educational background. Steve had attended
      not only U. of I.—which has a well-respected computer-science program—
      but also the Illinois Mathematics and Science Academy (IMSA), a state-
      funded boarding school. "IMSA plus U. of I. is generally a very
      winning formula," says Levchin, who says the combination
      produces "hard-core smart, hardworking, nonspoiled" young engineers
      who are perfect for start-ups. "The kind of people that imsa attracts
      are the kind of people very prone to choose their own path," he says.
      They also grow up quickly, since IMSA feels more like a college than
      a high school. It's coed and highly competitive, the schoolwork is
      college level, and kids spend every possible second on the Internet.

      Which isn't to say Steve is a geek—at least not an irretrievable
      geek. Chad gets more attention for his laid-back cool look, but Steve
      is actually more fun to hang out with, particularly since he started
      drinking a year and a half ago (right around the time YouTube was
      founded; he jokingly wonders if there's a connection). Steve seems to
      wear the responsibilities of the company more lightly than Chad, and
      he has absorbed less of the heavy p.r. coaching. Steve, for instance,
      is willing to speculate about what his wealth might mean for
      him: "It's funny, you know, Chad and I will probably, are definitely
      at YouTube for the next five years. But you do start wondering,
      What's next? Now that you have some cash, and it's like, Well, if I
      could live in any city, where would I live?"


      "New York, in spite of the weather, is a cool place." For now, Steve
      lives in the San Francisco apartment he bought a bit rashly in 2005,
      when he had just left PayPal and YouTube was in its infancy.

      Steve was born in Taipei and has his own interesting relationship
      with luck. When he was a little kid, maybe 6, his mother took him to
      see a fortune teller who told him he would never be rich. "And that's
      kind of stayed with me ever since," he told me. The experience left
      him with a sense of dread that he takes half-seriously. "We haven't
      actually seen any of the money [from the Google deal] yet," he says
      with a laugh, "and I keep thinking there will be some legal
      complication, or it will fall through somehow."

      But things always seem to work out for Steve, who carries an aura of
      mischief with him like a cloud of cigarette smoke. He drinks
      cappuccino well into the night and doesn't get to work until noon
      approaches. Levchin says that when Steve was an engineer at PayPal,
      he quickly established himself as the guy who could find
      the "shortest, cleverest path instead of hammering your head against
      the wall... He'd be like, 'Yeah, I can get this feature done fast.'
      And the QA [quality assurance] team would be like, 'Oh, man, Chen
      wrote this. Great. I'm going to be QAing this for a while.' Because
      he would definitely take short cuts. But most people wouldn't really
      notice, and the product would be out faster."

      As YouTube developed, Chad and Steve's complementary skills began to
      mesh. After Chad left PayPal in 2003, it seemed possible he would do
      something more artistic than be a CEO; he designed messenger bags,
      and he did a bit of work on a film Levchin helped fund, Thank You for
      Smoking. "He is sort of an anomaly," says Donahue, his former
      roommate and the founder of HourTown.com. "Because if you look at the
      successful start-up stories, the formulaic founders' team is usually
      an engineer and a business person, or two engineers. It's rarely a
      designer or a truly creative person." But YouTube's success owes
      partly to its retro name, simple logo and alternative feel, all of
      which Chad contributed while Steve was making sure the videos played
      quickly and easily.

      A mentor had also arrived with the Sequoia financing: Pierre Lamond,
      76. In terms of Silicon Valley stature, Lamond approaches Chad's
      father-in-law Jim Clark. A founder of National Semiconductor, Lamond
      started at Sequoia in 1981. He monitors his investments closely, and
      he enjoyed receiving daily e-mails from Chad and Steve (many sent
      late at night) on various site metrics. He was pleasantly surprised
      to discover that Chad and Steve were great listeners—a rare quality
      in the genius culture of the valley—and that they spent money very
      carefully. Whenever site growth would plateau, Lamond would call them
      and say, "'What happened?' And they would tell me, 'We're running out
      of storage capacity.'" Lamond sometimes had to push them to buy more.

      Early on, Chad and Steve made a crucial good decision: despite
      pressure from advertisers, they would not force users to sit through
      ads before videos played. Pre-roll ads would have helped their bottom
      line in the struggling months, but the site would never have gained
      its mythological community-driven status. It would have seemed simply
      like another Big Media site.

      The question is, How do they preserve the site's underground image
      now that YouTube is merely a bijou in the Google empire? As it
      happens, Google executives are powerfully aware of this problem, and
      they are sending outward signals that YouTube will remain
      independent. Google recently sent a team of facilities people to the
      YouTube office outside San Francisco to ask how the YouTubers want
      the place decorated (YouTube moved to the old Gap offices in San
      Bruno before the acquisition, and they haven't had time to fix up the
      space). "The direction we were given," Google's facilities manager,
      Ninette Wong, told Chad in a meeting, "was to really get information
      from you, Chad—you, the man!—and to understand how to integrate the
      YouTube brand into the work space... It's really to kind of keep
      Google separate from YouTube." With the old start-up frugality still
      in mind, Chad said that his coders don't need more space to work—
      "They don't complain"—and that greenery is a low priority because "I
      hear it's expensive to maintain the plants at Google."

      Google will appreciate his thrifty approach, but it's unlikely that
      the company knows the extent of YouTube's current independence. In a
      recent YouTube management meeting I sat in on, Gideon Yu, late of
      Yahoo! and now cfo at YouTube, told Chad and Steve, "The finance team
      [at Google] has been pushing me really hard on budgeting, your
      favorite topic. So what I'm telling them and what I'm telling us are"—
      he paused—"different."

      A nervous laugh shot through the room, but Yu pressed on: "What I'm
      telling them is that there's no way we're going to get them any
      budgetary numbers—that it's just impossible because we have no idea
      what the integration looks like, blah, blah, blah. And they're buying
      it, a little bit. But I still think that the 'us' team, here, should
      put together some kind of rudimentary kind of plan... even if we
      don't share that upward."

      To be sure, Google will get some control for its $1.65 billion.
      YouTube's managers must now report to Chad or Steve and a
      corresponding Google exec. That prompted Suzie Reider, chief
      marketing officer, to ask the boys whether she now has two bosses.
      Without skipping a beat, Steve replied, "You only have to listen half
      the time." Playful as always, he added that he didn't think he was
      going to use a Google-supplied BlackBerry that would be fitted with
      Google's mail and calendar system.

      The biggest threat to YouTube remains potential copyright lawsuits
      from content providers who could claim that the site—like Napster
      before it—is enabling thieves. In a recent report, Google
      acknowledged that "adverse results in these lawsuits may include
      awards of substantial monetary damages." Mark Cuban, the billionaire
      co-founder of Broadcast.com, has said publicly for months that the
      potential for legal trouble makes YouTube a bad investment. YouTube
      has responded by publicizing agreements it has made with media
      companies such as nbc Universal Television to legally show video
      clips from, say, The Office. Still, YouTube says federal law requires
      only that it remove videos when copyright holders complain—not to pre-
      emptively monitor the site for infringements, which would destroy its
      spontaneity. If kids can't play sad pop songs in the background of
      their video blogs, why would they blog at all?

      In an e-mail, Cuban pointed out a contradiction in YouTube's
      position: "They are spending a ton of money to license content. Which
      makes me curious. Why license if all that content is viable under
      [federal law]? And when does the licensing ever end—won't everyone
      want [to get] paid? Even the personal videos of cats?"

      Eric Schmidt, Google's CEO, told me his company had hired an outside
      firm to help it analyze YouTube's legal risks. "And we concluded that
      Mark Cuban's arguments were false. We read them, by the way. We just
      think he's false. Copyright law, the safe-harbor provisions—it works,
      as long as we do a good job of takedown"—quickly removing videos
      whenever copyright holders ask.

      It's hard to imagine Chad and Steve sitting through endless meetings
      on safe-harbor laws. They're too young, too creative and—in Steve's
      case, at least—too peripatetic. They usually demur on questions of
      what they will do next, blandly stating their hopes to "improve the
      product," as Chad puts it. But Levchin, their former boss at PayPal,
      says, "The essential crisis is coming. They better get ready. And the
      essential crisis for an entrepreneur is, What is this all about? Did
      I just make the most money in my life ever? For what purpose? And...
      am I going to start setting up my family office and manage my
      investments, or am I going to jump off another roof and hope there's
      a parachute?"

      Which is a very old question indeed, one all newly wealthy people
      face when the market rewards them. Chad and Steve don't yet have an
      answer. They may have built a website that changed the online world
      in 2006, but they are still learning when to leave the party.
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