Following days of speculation, internet giant Google confirmed its acquisition of video sharing site YouTube after the stock markets closed on Monday night.
Google is paying $1.65 billion (€1.5 billion) in an all-stock deal for the 18-month old company which makes it easy for internet users to view and share short video clips. It is Google's largest acquisition to date. In the past, it focused on buying companies to acquire their engineering talent. Google said YouTube would continue to operate as a separate entity "to preserve its successful brand and passionate community".
YouTube has not been profitable and is reportedly losing $2 million a month. The site carries banner advertisements and sponsorships, but chief executive and co-founder Chad Hurley has gone on the record as saying he would be interested in finding a way to place relevant advertisements in front of visitors to the site. Google has come to dominate the internet advertising market by displaying advertisements that are relevant to the topics that people are conducting searches on.
Google also seems attracted to the start-up for its impressive traffic figures and its high brand recognition among younger internet users. YouTube serves up an average of 100 million video clips a day to about 50 million users worldwide.
Given that the future model for Google and competitors in the online video space such as Yahoo and MySpace is to embed advertising in the videos, internet traffic measurement company ComScore Networks has suggested that the number of video streams served up is a more meaningful figure rather than total number of visitors to a site. Using this methodology, MySpace leads with 20 per cent of all streams, Yahoo has 11 per cent of the market and the new combined YouTube and Google is in third place with 10 per cent.
YouTube provides tools which make it easier for users to notify their friends of interesting content they have found on the site as well as embedding video clips in their own sites. As a result, its users have provided free marketing for YouTube. In contrast, traffic acquisition costs are a closely watched figure in Google's financial statements, accounting for up to a third of advertising revenues.
There are other significant risks for Google in the deal. Despite having signed deals with Universal Music, Sony BMG and CBS this week to allow it distribute their content, YouTube still runs the risk of being sued by a copyright owner whose video is uploaded to the site without their consent. It would seem likely that Google will develop software to find copyrighted material that has not been uploaded by the owner.
The deal also represents another massive pay day for legendary Silicon Valley venture capital firm Sequoia Capital which had also been an early stage investor in Apple, Cisco and Yahoo. It participated in two rounds of funding for YouTube totalling $11.5 million, but its share of the Google stock could be worth as much as $495 million based on an estimated 30 per cent holding.
Specific Irish traffic figures for Google and YouTube are not available, but both sites are understood to have significant user bases among the Republic's approximately 400,000 broadband subscribers.
As well as its dedicated Google.ie site, Google has done deals with local portals such as Ireland Online and Eircom.net to include its search engine on their sites.
