Google acquisition of YouTube the best deal in tech history
The price made YouTube Inc., a still-unprofitable startup, by far the most expensive purchase in 2006, Internet search leader Google snapped up YouTube for $1.65 billion, and brushed out copyright concerns to seize a starring role in the online video revolution.
The all-stock deal united one of the Internet’s marquee companies with one of its rapidly rising stars. It came after YouTube unveiled three separate agreements with media companies to counter the threat of copyright-infringement lawsuits made by Google during its eight-year history.
YouTube was worth exactly the amount of money Google paid to buy the online video-streaming platform.
Today, Google is making $1.6 billion from YouTube in every three weeks. That’s more than thrice amount YouTube would generate in a year prior to the acquisition.
According to NBC News, when the acquisition happened at the time, some cynics questioned YouTube’s staying power but Google bet that the popular video-sharing site will provide it an increasingly lucrative marketing hub as more viewers and advertisers were migrating from television to the Internet.
“This is the next step in the evolution of the Internet,” Google Chief Executive Officer Eric Schmidt said at the time.
YouTube retained its brand, its new headquarters in San Bruno and all 67 employees at time, including co-founders Chad Hurley and Steve Chen. Meanwhile, Google continued to run a less popular video service on its own site.
The deal closed before the end of the year 2006.
“I’m confident that with this partnership we’ll have the flexibility and resources needed to pursue our goal of building the next-generation platform for serving media worldwide,” Hurley, YouTube’s 29-year-old CEO by then was quoted by NBC News.
Schmidt thought so highly of Hurley and Chen, 27, that he compared them to Google’s then 33-year-old co-founders, Sergey Brin and Larry Page.
Brin sees the similarities too. “It’s hard to imagine a better fit with another company,” Brin said during Monday’s conference call. “This really reminds me of Google just a few short years ago.”
The two companies even share a common financial bond: Sequoia Capital, an early Google investor that owned a roughly 30 percent stake in YouTube. Menlo Park-based Sequoia remained a major Google shareholder and retained a seat on the company’s board — factors that might have helped the deal come together after just a week of negotiation.
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 startup eventually would be sued into oblivion, which did not happen.
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 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 struggled to become a major player in online video till the purchase of YouTube.
Several other suitors, including Microsoft Corp., Yahoo Inc. and News Corp., reportedly have discussed a possible YouTube purchase in recent weeks.