Google Buys YouTube for $1.65 Billion

Over 30 readers wrote about Google's purchase of YouTube today for $1.65 Billion, as rumored last week. The all-stock transaction is the single largest purchase in the company's 8-year history. The move follows on the heels of Google's convincing Sony and Warner Music to put music videos online for free. Reportedly, YouTube will retain its brand and all its 67 employees, including co-founders Chad Hurley and Steve Chen.

YouTube not evil!

[mrbanzai]

SO glad that YouTube will now be sheltered by "the good guys" ... assuming they stay the good guys *cautious glance over shoulder*

Integration with Google Video?

[mysqlrocks]

Even though they say "YouTube will retain its distinct brand identity" I wonder how much integration they will eventually do with Google Video. Will YouTube videos be search-able on Google Video, for example? Google is usually good at not integrating just for the sake of integrating. For example, Google Analytics still uses a Flash based map instead of the Google Maps API.

Good buy for Google

[sbrown123]

I know some people won't get why they did this, or how Google will make money from YouTube. I will explain:

First, Google makes money through advertisement. Currently simple text banner ads. But a quick look at other sites will show you a growing interest in video ads. YouTube has a lot of visitors, and if Google plays this correctly they can make more advertisement dollars.

Secondly, YouTube signed some nice contracts with the likes of CBS and two music labels.

Ironic...

[Anonymous Coward]

If you can't beat em... join em.

It will be interesting to see the slashdot comments relating to this... When microsoft buys a company it's because microsoft sucks and can't innovate... let's see how slashdot spins this one...

Re:All i ask for is:

[D H NG]

Surprisingly, I found Google Video's search capablities lacking compared to YouTube's. Google Video searches exactly what you're looking for, with no variations. YouTube is a little bit smarter, it can perform keyword branching, which surprisingly works very well for video searches. (When I'm searching for boobies, I don't care if it's one or many boobies they're showing.)

We all know that this was a mistake... NOT!

[lonesometrainer]

Youtube was in deep trouble. First they didn't have a real business model. The whole company obviously was waiting for a white knight to save them, the numbers seemed to be painted red, deep red. And second, the obvious copyright reasons.

Not the sort of company that looks like an attractive bride, does it?

But this purchase was NOT a mistake. Why you may ask again? Short answer: peering agreements.

Google has the fat pipes (read: dedicated lines) they are basically an owner of a worldwide internet backbone. They will be pushing massive amounts of data into other carriers networks. Pushing alot more data at internet-exchange-points than pulling mostly equals to big cheques. Nothing Youtube was dealing with, but Google does this sort of stuff.

Imho Youtube will be a money maker, just because of the bandwith.

Re:Hmmmm

[motank]

well the mpaa and riaa might have been itching to pick on poor little youtube but do they wanna pick a fight with google? i expect google will force these companies to deal with it and accept the internet isn't gonna go away (and share some ad revenue)

Re:Good buy for Google

[sporkmonger]

I expect it was the contracts more than anything that justified the price. The original purpose though, was almost certainly to consolidate the two biggest video players into one. That said, the only reason this happened at all was because it was an all-stock deal. Google's stock was at around $430 today, which a lot of people seem to think is still over-valued, especially by people within Google. If the internal Google people think their own stock is over-valued, it makes sense for them to try to get the most out of it while it's still high.

$1.65 billion IN STOCK

[tpengster]

Keep in mind that Google is not paying dollars -- they are trading Google stock for YouTube stock. So even though $1.65b is a scary number, what you should be asking yourself is not whether YT is worth $1.65b, but whether it is worth 1.25% of Google.

Re:Hmmmm

[Jah-Wren Ryel]

The bubble will burst on this purchase. There's too much copyright infringement going on @ Youtube.

And more importantly, now there is someone to sue. Someone with lots and lots of money, so all those $200K per infringement civil awards actually have a chance of being paid out. Watch for Hollywood to their absolute damndest to take Google's IPO money the same way the RIAA took mp3.com's $200M of IPO cash.

Re:Integration with Google Video?

[mysqlrocks]

IMHO that was an example of why Google *should* integrate.

I wasn't necessarily saying that they should or shouldn't have used the Google Maps API, just giving an example of where, from a strictly technological point of view, it would have made sense to integrate but they chose not to integrate for whatever reason. I'm guessing that all of the Urchin users that were switched over to Google Analytics have an expectation as to how that feature works and Google wanted to be cautious about changing a feature out from under an existing user base.

Re:implausibly stupid?

[bobsledbob]

Well, remember, this is a STOCK ONLY deal. There is no cash exchanged. So, if you're angry, you should be angry at the dilution of the stock. But, you can't be angry at what "they could have bought with that money." To Google at this point in their history, the deal was practically free.

You've seen that Simpson's where Bart works for a dotcom, right? You know, how the stock is worth toilet paper? That's somewhat close to the view from the inside when making deals using stock. It's like free money to them.

Re:YouTube not evil!

[vertinox]

SO glad that YouTube will now be sheltered by "the good guys" ... assuming they stay the good guys *cautious glance over shoulder*

I'm more than happy with that. At least now Youtube will have Google Adsense ads rather than Myspaces "epileptic punch the monkey you win a frigging iPod PS3 viagra sweepstakes" flash banner ads with 400 double click pop ups and unders.

Google made money on this

[nate nice]

Although I disagree with this long term, what most people haven't realized is that Google got YouTube for free. On news they might buy last week, their stock rose ~2%. It rose even more today with more news and will probably raise a bit more tomorrow. So, 1.65 billion in stock was given away which is something like 1.5% of the company. If they just increased the companies worth by 5%, did they not just make a profit buy "buying" this company?

Long term it might not turn out that way, but annually this is great.

Re:Explain to me...

[Anonymous Brave Guy]

I'd like to see some serious commentary on this, and not just the assumption that youtube voilates copyright. I spend probably and hour a week watching stuff on youtube, and I'm sure over 95% of what I see does NOT violate any copyrights.

Whereas at least half of the stuff I've seen on YouTube and the like blatantly violates copyright (for example, because it's a complete copy of a special interest DVD), and a lot more is infringing on technicalities (for example, because it's video from a dance competition, but all the music in the background isn't licensed for redistribution).

Pretending that "fair use" is some sort of silver bullet in copyrightland is just wishful thinking. YouTube's entire business model revolves around people coming to see their content, and a great deal of their most popular content is clearly infringing. It's a matter of time before (a) they take draconian steps to remove it all (and dramatically slip down the list of popular web sites), or (b) they get seriously spanked in court.

And yes, reproducing a complete five-minute segment from a TV show "just because" is clearly a copyright violation. It's the difference between using a 30 second excerpt from each of The Daily Show and CNN to illustrate a write-up of the recent "Daily Show news is as good as the news channels" discussion, and copying a whole segment from either source because you found it informative and wanted to share it.

What is "evil"?

[Anonymous Coward]

The only reason anybody likes YouTube is because it's full of blatantly illegal content. YouTube is the new Napster. By buying Youtube, Google has put themselves into a position where they only have two options and both are "evil" from someone's perspective. They can continue hosting copyrighted material without permission and brazenly break the law, thus being "evil" to the coypright holders. Or they can stop hosting such content and effectively destroy the community that has built up around YouTube, thus being "evil" to Joe Random Netizen.

How does Google's "don't be evil" mantra work if they allow themselves to become involved in situations where one man's evil is another man's good?

Unless they have some secret plan for Youtube now that they've bought it that is so deviously brilliant I can't even conceive of what it might be, this really looks like a no-win situation for Google.

"Stupid?" Please justify.

[tpengster]

OK, I'm seeing a lot of posts calling this acquisition "stupid" and i'm seeing the word "bubble" a lot. Now, many of these posters may know exactly what they are talking about, they may be far more informed about the business prospects of both companies than I am.

But if you just say "this is stupid" without any analysis of the future earnings of these businesses, you are adding nothing to the discussion.

Consider the following: Google is paying approx. 3.85 million shares of Google for YouTube. What is the value of those shares? Probably less than you think. What kind of competitive advantage does google have to justify such a high P/E ratio? They have the smartest technical people in the valley, and a great culture, those have to be worth something. But I'd argue that thy aren't worth $430 a share. What happens to google.com's traffic once people start using MSN search by default in the IE7 search box? Well, I can't tell you exactly what will happen, but I've got a decent guess. It'll PROBABLY GO DOWN, at least the growth rate. Does this sound like a company that is worth 62 times earnings ($130b by market value)?

I'd argue that if there's a bubble here, it's probably in the price of Google, not the price of YouTube. These things are hard to predict because you don't know exactly how the technology, and the underlying social dynamics of the users, will play out. And yes, the legal issues are thorny and I don't feel qualified to analyze those (though I'm sure Google's lawyers are more than qualified to). But i'd argue that Google ought to be making MORE acquisitons with its stock, not fewer.

Re:YouTube not evil!

[frank_adrian314159]

So why aren't you using an ad-blocker?

So why should we have to? That's like putting mercury in the water supply and blaming everyone for not having water filters and chelation therapy handy.

Re:YouTube not evil!

[mythosaz]

Things like YouTube (and for that matter Google) don't exist if there isn't a revinue source behind them. There are certainly labor-of-love good-of-all-mankind websites with spectacular content on them (Wikipedia comes to mind), but most of us have bandwidth bills to pay and can't depend on the kindness of strangers.

Oh, sure, we all skip our commercials and block our popups, but when nobody sees those ads, we're going to be one step closer to DRINK COCA COLA in neon on the moon.

I don't mind lending an advertiser my ear if they can advertise tastefully, and in return they provide funding to My Favorite Distracting Thing on Television/Web/Radio(tm) so they can make a few more episodes.

Re:So ungoogle

[Firehed]

Google's worth about a hundred billion dollars? It's impossible to nail that figure and not be evil.

Re:YouTube not evil!

[walt-sjc]

I see it a little differently. Some modern ads have become so obnoxios that you just can't sit through them. Some are just annoyingly loud with horrible, harsh music or speech, or quickly flash 47 mini video clips in 15 seconds giving you an instant headache... I suppose the ad agency thought they were doing an attention grabber, but instead they have evoked an instant hatred of whatever product was being advertized. On the web, is there anyone that doesn't have a total hatred of X10?

Use tactful, creative, intelligent ads that are non-intrusive and I won't be blocking / skipping them.

I was watching a football game this sunday and saw an ad for a car that was done up like a drug ad - guy who is normally clostraphobic in small cars finds the new car roomy enough - at the end he goes into a field of wildflowers with a puppy and the model name of the car is shown with the MPG shown in small print much like drugs show the dosage. It was whitty, creative, and not obnoxious at all. I actually backed it up with Tivo and showed it to my wife who also got a kick out of it.

Re:A discussion other people just had

[Achoi77]

And why are you so quick to call the purchase "stupid"? You don't think that the folks at Google can come up with a good advertising strategy for YouTube?

I wouldn't say the purchase of Youtube is stupid, rather the purchase of Youtube for $1.65 Billion. Considering the bandwidth costs, I honestly don't think that ad revenue is going to cut it. No, I beleive they bought Youtube simply becuase they didn't want anybody else grabbibg it first. As of right now Youtube is money going down the drain and while the potential is there, so I'm merely curious to see how this pans out.