Google Inc. said today it’s buying No. 1 Internet video sharing Web site YouTube Inc. for $1.65 billion in stock. While most of the market thinks this move is largely a defensive one, there are many good reasons outside of defense for this buy out.
If You Can’t Beat Them, Buy Them
YouTube is the number one video sharing site on the net, with 42% of the market. By comparison, Google Video is just a little pea boat next to an aircraft carrier. Sure, Google has the technology and the resources for build a YouTube clone but the one thing they do not have is the YouTube traffic, and the traffic is really the key behind this purchase.
Another thing to keep in mind is this deal doesn’t cost Google any cash – it’s a 100% stock transaction. That leaves $10 billion in the bank to battle all those potential copyright lawsuits. Speaking of copyrights.
What A Great Way To Show Off Your New Copyright Technology
Google is no newbie when it comes to dealing with copyright violations. They have been involved in a few big ones and have come out of it smelling like a rose each time. The number one threat to YouTube has always been the possibility that they will be sued out of existence because of users uploading copyrighted videos. The theory is YouTube hasn’t been sued yet because they have no money. However, if a buyer with a big bank account came along, watch the lawsuits fly. This argument doesn’t hold much water. Google has tons of copyrighted materials on Google Video. Google has tons of cash. Where are the lawsuits?
With the signing of three separate content deals with the major labels (plus one with Warner Music Group in mid-September), the threat of lawsuits from the majors become less and less. Instead of suing, it looks like they are joining. The YouTube purchase will also serve as a great platform to show off the new Google technology that detects copyrighted materials in videos.
Learning From MySpace
Google had to pay $900 million to sell advertising on MySpace. That is more than what News Corp paid for the entire site. Why rent space when you can own it?
Google already knows how much they can make from YouTube. Since they supply AdSense advertising for the site, they have a very good idea of its income potential. A site the size of YouTube would take 80% to 90% share of ad revenues. Now that share goes back to Google. Google could have used this to help finance the deal but since this is an all-stock transaction, it’s money in the bank.
Blocking Out Microsoft
There was a rumor that Microsoft was working on a $600 million deal with YouTube to supply advertising. That deal, if there really was one, is now dead in the water.
Showing Mark Cuban Who The Real Moron Is
Mark Cuban said anyone who buys YouTube is a moron. This coming from a man who also said, “Somebody puts up something really good and you get, what, 60,000 viewers?” In his latest blog entry, Mr. Cuban no longer calls Google a moron – he calls them crazy. Maybe he is getting ready to pin the moron label on himself for thinking his Benefactor would be a hit.