GOOGLE TO ACQUIRE YOUTUBE FOR $1.65 BILLION
October 9, 2006

Google Inc. today agreed to buy YouTube Inc. for $1.65 billion, Google's most expensive purchase in its eight-year history. The YouTube acquisition catapults Google to the top of the fast-growing online video market.

YouTube, the tenth most popular site on the Web, has become a cultural icon., showing over 100 million video clips per day. According to the August comScore Media Metrix numbers, YouTube reaches an audience of 72.1 million.

Rumor has it that Microsoft, Yahoo, and News Corp. were all interested in purchasing YouTube. Many analysts believe that this latest Google acquisition will ultimately make Yahoo and Microsoft seem less relevant and technologically innovative, and speculate that Google's acquisition of YouTube will push Yahoo into purchasing Facebook.com, the Internet's second most popular social-networking site. Yahoo is rumored to have offered $1 billion for Facebook in recent months.

While Google is the dominant player in the search market, it currently owns a tiny share of the emerging video market, compared to its chief rival Yahoo. The YouTube acquisition may change that. Google may once again redefine the online advertising market. Google's chief executive officer, Eric Schmidt says that Google and YouTube "are natural partners to offer a compelling media entertainment service to users, content owners and advertisers." YouTube will retain its brand and its current 67 employees, including co-founders Chad Hurley and Steve Chen.

Critics have questioned YouTube's longevity. Most of YouTube's videos are homemade, but the site also features copyrighted material — lawsuit magnets that critics have speculated would be YouTube's ultimate undoing, reminscient of music-sharer Napster's fate. But YouTube has also announced new partnerships with Warner Music Group Inc., Universal Music Group, CBS Corp. and Sony BMG Music Entertainment, licensing and promotional partnerships which should forestall threatened copyright infringement litigation.

No doubt more media companies will flock to YouTube now that Google owns it. And Google is betting that the increasingly popular YouTube will prove to be a lucrative internet marketing hub in a media environment where both viewers and advertisers are migrating from television to the Internet. Google is betting that this move will build the next-generation platform for media worldwide media-serving.

Google hasn't made many bad bets.