October 09, 2006

Google Buys YouTube for $1.65 Billion

Every once in a while, one of those wacky acquisition rumors just happens to be true. In a flashback to the 1999 .com heyday, search giant Google purchased online video outlet YouTube in a deal worth more than $1.6 billion in an all-stock transaction. As with those 1999-era deals, in contrast to most M&A activity, Google's stock rose sharply after-hours. Also similar to that rosy era, Google chose not to disclose how they arrived at such a lofty valuation for the company, whose revenue and profits are so far a mystery.

I wrote earlier that Google would potentially hesitate at the deal due to the tremendous amount of copyrighted material hosted by YouTube. Though the site is the leading platform for amateur video, it also hosts a ridiculous number of materials owned by major media outlets, who have made noise about enforcing their copyrights. Now that Google has acquired YouTube, they've gained more than a superstar Web 2.0 company, they've also acquired the potential for a string of lawsuits unlike anything seen outside of the  litigation-happy pharmaceutical industry.

Clearly, my concerns weren't shared by all in Mountain View. VentureBeat contributor Steve Poland said that while the prospects for litigation were high, that Google "has significant interest in this battle, as it will set a legal precedent and have significant effects on their future plans …" The company already has raised the ire of copyright holders for its far-reaching book archiving and search projects, and Google has said it wants to organize all of the world's information, regardless of its source, and that video is part of that information repository.

On Google's analyst call following the acquisition this afternoon, CEO Eric Schmidt said YouTube's ad network is remarkably similar to that of Google, and that it doesn't threaten the future of Google Video, which has gotten off to a very slow start.

The deal isn't without its detractors. Dallas Mavericks owner and part-time billionaire blogger Mark Cuban sticks to his guns saying that "Google is crazy". Of course, it could be just as easily argued that Yahoo! was crazy when they purchased his Broadcast.com, making him scads of cash. Maybe it's the fact the deal's hit so close to home that has him in a snit.

Google has made several under the radar acquisitions of small companies. Some, like Keyhole, have turned into applications, like Google Earth. Still others have been grabs for intellectual programmers with interesting ideas. As John Battelle writes, this will be Google's first big brand acquisition, and the first challenge to the Google brand, as the two companies try to remain separate but synergistic.

I'm somewhat on the sidelines for this deal. I have never posted a video to YouTube, and don't even own a video camera. However, I really like the ease of use the site offers, especially for framing videos to other blogs. The real-time comment system and related videos are similarly top-notch. I don't know that this is the type of deal that will make Google an even bigger force to be reckoned with, but at the very least it puts them light years ahead of Yahoo! and Microsoft in this battle that is surely just heating up.

Listening to ''Moonface - Futurised Fears'', by Bedrock (Play Count: 7)