Google bets big bucks
2006-10-10 07:32
San Francisco - The founders of YouTube Inc built this year's standout web phenomenon by figuring out how to make online video sharing easier than ever.
What they hadn't yet figured out was making money from their site. Google Inc took that problem off their hands on Monday, by agreeing to buy the site for $1.65bn.
The all-stock deal makes YouTube by far the most expensive purchase made by Google during its eight-year history.
Although some cynics have questioned YouTube's staying power, Google is betting that the popular video-sharing site will provide it an increasingly lucrative marketing hub as more viewers and advertisers migrate from television to the internet.
"This is the next step in the evolution of the internet," Google Chief Executive Officer Eric Schmidt said.
YouTube will continue to retain its brand, its new headquarters in San Bruno and all 67 employees, including co-founders Chad Hurley and Steve Chen. Meanwhile, Google will continue to run a less popular video service on its own site.
The deal is expected to close before the end of the year.
"We are excited to have the resources to move faster than ever before," Hurley, YouTube's 29-year-old CEO, said.
Schmidt thinks so highly of Hurley and Chen, 28, that he compared them to Google's now 33-year-old co-founders, Sergey Brin and Larry Page.
Significant breakthrough
Brin sees the similarities too. "It's hard to imagine a better fit with another company," Brin said. "This really reminds me of Google just a few short years ago."
YouTube has drawn less flattering comparisons to the original Napster, the once-popular music sharing service that was buried in an avalanche of copyright infringement lawsuits filed by incensed music companies and artists.
While most videos posted on YouTube are homemade, the site also features volumes of copyrighted material - a problem that has caused some critics to predict the start-up eventually would be sued into oblivion.
But Hurley and Chen have spent months cozying up with major media executives in an effort to convince them that YouTube could help them make more money by helping them connect with the growing number of people who spend most of their free time on the internet.
As its negotiations with Google appeared to be near fruition, YouTube on Monday announced new partnerships with Universal Music Group, CBS Corp and Sony BMG Music Entertainment. Those alliances followed a similar arrangement announced last month with Warner Music Group Inc.
The truce with Universal represented a particularly significant breakthrough because the world's largest record company had threatened to sue YouTube for copyright infringement less than a month ago.
While Google has been hauling away huge profits from the booming search market, it hasn't been able to become a major player in online video.
That should change now, predicted Forrester Research analyst Charlene Li. "This gives Google the video play they have been looking for and gives them a great opportunity to redefine how advertising is done," she said.
Several other suitors, including Microsoft, Yahoo and News Corp, reportedly had discussed a possible YouTube purchase in recent weeks.
Google's YouTube coup may intensify the pressure on Yahoo to make its own splash by buying Facebook.com, the internet's second most popular social-networking site. Yahoo has reportedly offered as much as $1bn for Facebook during months of sporadic talks.
- AP