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Google Inc. is snapping up YouTube Inc. for $1.65 billion in a deal that catapults the Internet search leader to a starring role in the online video revolution.
The all-stock deal announced Monday unites one of the Internet's marquee companies with one of its rapidly rising stars. It came just hours after YouTube unveiled three agreements with media companies in an apparent bid to escape the threat of copyright-infringement lawsuits.
For Google, they get a premier video website with many viewers and great advertising opportunities, which could only further the embeded "must go to Google for everything" philosophy that is being instilled into the younger generation (OK, let's face it, every generation).
For YouTube, they get tons of cash and get to continue their own philosophy of offering anything and everything as a video... but mostly the money.
you can't pay for it with pre-roll, because nobody is going to sit thru a 15-second ad in order to watch a 10-second video clip... 98% of the content on youtube is complete garbage.
on the other hand, google has spent a fortune on dark fiber... sorta makes you wonder if this was all part of the grand plan.
As for deals with music companies, etc. - it seems unlikely to me that YouTube could ever become a serious player on a par with MTV, etc. Conceptually, YouTube is a "pull-technology" i.e. users choose what to watch but commercial interests require a "push-technology" i.e. users watch what is put in front of them (like TV adverts).
Incidentally, BBC Television News said something about it not being legal to place adverts on copyright-disputed material. I was cooking at the time and so wasn't paying full attention, but it sounded interesting given that the only likely source of revenue is advertising.
That's the big difference with Napster - they failed to 'go legal' because in those days, copyright holders refused to deal with them, thinking they could win the war ...
But they won the battle (against Napster) and lost the war - this time they are queing up to make a deal with Google / YouTube.
$40 for a video. You can crank out alot of freebies when you get $40 for one. Goog can do for video what broadcast.com did for radio or what Ipod did for music. It doesn't have to be advertising dominated - they can piece meal it via subscriptions and sales. There are so many possiblities...
That's exactly right, and you also dilute the shares outstanding. My prediction is the stock takes off on the hype as usual and takes a big dive when the smart money bails. It's like deja-vu all over again.
That's possible, it's also completely possible that they just made a poor business decision. Was the dot com bust that long ago? Don't assume just because they're Google they know everything.
Man, the hollywood lawyers must be salivating tonight.
What's more, they know what they need to know about the ad stream already (prior to buying) because they were one of the ad networks--they know what the CTR really is. This is another source of clicks that they get to keep the whole pie rather than split with a publisher. Maybe it's not significant share of all clicks today, but I imagine they have plans to grow it.
skibum's "all about the eyeballs" is spot on.
Come on, let's be honest now. If Google saves them 20%, they're in heaven. Sure costs are high but you can also look at it as "make more, not spend less." G isn't crying about spending hundreds of million in infrastructure becuase they're making a fortune. If you bring in $50 Million a month in advertising, $5 million in bandwidth fees aren't that bad.
Brett, thanks for the Guy Kawasaki link...read his columns on Forbes and he definitely knows his stuff. Brutally honest too!
>> but commercial interests require a "push-technology" i.e. users watch what is put in front of them (like TV adverts).
Both can be used IMO: "Video brough to you by Mcdonald's; Try their new Rubber ChickenŽ today! "
a total of 2-3 seconds and this can be compressed and shown as the real video is being loaded. They can also place ads around the video, in frames like most TV stations do. Google has probably thought of this, and can easily absorb the costs for many months till they figure something out.
Even though Goog paid too much money, it's not a bad move to GOOG's long term development. I hope Google will have enough remainning money to buy others
This didn't cost Google ANY money. None. Zero. Zip. Nada.
OK, except for the lawyers and accountants.
Do a search on "stock swap" to understand how this works.
They created stock out of thin air to give to the owners of YouTube. In exchange, the owners of YouTube turned-over their (non-publically-traded, in this case) shares of YouTube to Google.
The (former) owners of YouTube get to sell their (newly created, out of thin air) shares of GOOG on the open market for cash. (Typically after a waiting-period defined in the deal.)
The shareholders of GOOG are the ultimate winners or losers. The price of GOOG goes up or down, depending on the market's view of whether it was a good deal or not. Is the value received greater than or less than the value of the stock newly-minted out of thin air?
Why can they create stock out of thin air? The shareholders of GOOG previously authorized the board of GOOG to do so, because they are such nice guys, and are not evil. And/or will require shareholder approval to finalize. But who owns the majority of GOOG stock?
GOOG shareholders trust Larry and Sergey to not be evil and look out for their interests.
GOOG shareholders are a trusting lot, as GOOGs corporate structure has some unique features that test the limits of shareholder trust.
Now they can get a payday, time after time.
Google will have to slow down video approval by hours, maybe even a day, causing the people that made youtube to be popular in the first place to find another service.
This purchase makes as much sense as buying a share of AOL.
I used to wonder how anyone would take on Google, now I know. The next one that comes up with a simple interface and results like they used to have 5 years ago will win. Maybe someone like gigablast (if they rename).
I think some of the people at Google who are more in touch with reality need to print up T-shirts that say "it's about search, stupid".
[edited by: amznVibe at 4:38 am (utc) on Oct. 10, 2006]
One thing I'm sure of is nobody is better equipped to squeeze cash out of YouTube's content and traffic than Google.
Also, my understanding is that they plan to keep Google Video as well. How they'll break up the division of duties (paid vs free, ugc vs pro) is anybody's guess.
I do not know what Google plans for YouTube other than they just eliminated their biggest competitor and increased google's "fun-ness" factor by a large percentage for the crowd that looks for such things.
Outside of a few people (like us), they don't care who owns youtube, and will not be disenfranchised by it's "comercialization." They will continue to use it, and instead of clicking on YouTube ads, they will now click on google ads.
There will be a few users who abandon YouTube based on principle (I dont like big scary giant search engine types of people), but most don't care. They want good videos from a name that they recognize. That's all.
For Google it is perhaps merely a strategic acquisition just to remain in the "media" race after their own Internet TV Network had not been that much competitive.
As for delivering the videos maybe they have anough spare capacity to deliver all the videos without too much of a headache - therefore that may not be a huge issue.
Also, at some point someone will have to force the issue of copyright and on-demand video as it will not go away. Who better to do the deals and legitimise the area than one of the most identifiable and trusted companies in the world?
It is a good point that google has gained $4 Billion in capital this week.
Google has gained $4 billion in market value this week. Not the same thing as capital. It isn't cash they can spend on electricity, office space, or salaries.
Lots of misconceptions here. We have people worrying if Google has enough money left, after they have spent none, and rejoicing about them taking in money that they haven't...
1) I estimate about 60% to 80% of the content to be non authorized, copyright protected content. Google must present a very good proposal to copyright owners in order to silence them. Otherwise they will probably sued to hell for infringements.
2) Once they introduce other ways to monetize the traffic (pre-roll, post-roll, mid-roll, overlay), people will leave the site. As someone pointed out, very few people will watch a 15 second pre-roll ad to watch a 45 second "movie" created with a shaky mobile phone.
I agree, though, that Google will not notice the aquisition too much in their books. It's just stock, you know.
Google can print money for free, so long as they remain a Wall Street darling. It's a can't lose situation IMO.
"98% of the content on youtube is complete garbage"
Pretty close but people swarm to the site like crazy!
"Umm, ok - I give!? Could it be the 60-100 million page views a day?"
I thought it was 100M videos viewed?
Nothing is free. Google doesn't get to print free shares any more than the Federal Reserve gets to print free money. It dilutes the stock, making your stock worth less whether you realize it or not. People who don't understand that concept don't usually last to long in the stock market.
And I agree that people generally don't like it when thay percieve one company as getting too large. Unfortunately for Google, it's a lot easier to stop using Google than it is to stop using Windows for most people.
Once YouTube starts taking on a commercial appearance it will lose it's appeal IMHO.
No, but like a ballon, they get to inflate the value of those shares.
Look back 1 week ago today, Google was trading for $399. It is clear that about mid last week the rumors started to float around Wall Street that a deal was in the works.
Then yesterday GOOG was up to as high as $432 a share. I bet it goes up another $10+ today. How much value did that add to Goog? Again - by the time it is done, Google stock will pay for the deal in increased value alone.
btw: everyone realize that Sequoia Capital was one of the original seed firms that funded YouTube? I have said it for years and years - never under estimate the power of the oldboy network in the SillyCon Valley.
sure it dilutes the stock but if the earnings per share increase accordingly, they should be fine. I agree on the commercial part, but it all depends how they go about it. It is possible to make money and still keep it cool.
Brett, as far as the price share: it depends if it holds. Once the price goes down, the number of shares still says the same.
Over the last two days, Google and YouTube executives have compiled an extensive list of ways to integrate the two features. There's now plans to soon incorporate YouTube videos into Google search results, and to make YouTube part of Google's AdSense advertising feature, according to Google co-founder Sergey Brin.