As the World [Wide Web] Turns…
It’s fascinating to see some of the people who criticized YouTube today come out and suggest that it would not be foolish for Google to plunk down $1.6 billion for YouTube because only Google would be able to make up its investment. While it’s true that Google - who has positioned itself not as a media company as Yahoo! has and as such befriended media companies - would not run pre-roll ads and draw the ire of media companies whose content is being pirated on YouTube, it’s worth noting that acquiring YouTube - a large company as measured by potential purchase size - does not fit in Google’s historical checklist of acquired companies.
Google typically buys/acq-hires small companies who have a technology Google lacks - in this case, Google has its own video service.
Google also tends to buy small companies, it has never paid anything near $1 billion for a company. Of course, only now does it have a stock price that few seem to view as suspiciously inflated, and it’s raised enough dough over the quarters to have a warchest to pull the trigger: at last count (Quarter ending June 30), Google had some $4 billion in cash.
All to say, if Google does acquire YouTube, it will certainly not be - with all due respect to Jason Calacanis’ argument - that it could make it back through Ad Sense. Ad Sense might work for Google and most sites, but the fact that YouTube ran both Google and Yahoo!’s CPC-style text ads only to remove quickly suggests that Click Through Rates (CTRs) are too low on such sites to make a financial dent. This is the same reason why I think that Google overpaid for MySpace’s search business, doing so as a defensive move against MSFT and Yahoo!
If they do go ahead with the purchase, it has probably more to do with the fact that Google Video has yet to make the kind of marketing dent that Google’s management had hoped for, even after replacing the Froogle link (remember that) with the Google Video link on top of its organic search results, as this post off HitWise’s blog suggests. I was one of the many people who thought that “simply adding a link” on Google’s search results page to Google Video would drive up its traction; and while the graph shows that indeed such a move did that, it now seems that YouTube has continued its ascendancy despite the massive spike in traffic going to Google Video.
And… last but not least, a week after RBC analyst Jordan Rohan came out and said that MySpace could well be worth $15 billion by 2009, then it might prompt some in Google’s management circles to be tempted enough to acquire YouTube, effectively making it the largest company it has ever gobbled.
It should be noted however, that this is all hearsay.
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