Dangerous Incorporated
10-10-2006, 09:50 PM
You Tube Sold To Google
A profitless Web site started by three 20-somethings after a late-night dinner party is sold for more than a billion, instantly turning dozens of its employees into paper millionaires. It sounds like a tale from the late 1990s dot-com bubble, but it happened Monday.
Google, the online search company, agreed Monday to pay $1.65 billion in stock for the Web site that came out of that party -- YouTube, the video-sharing phenomenon that is the darling of an Internet resurgence known as Web 2.0.
YouTube, founded in February 2005, had been coveted by virtually every big media and technology company as they seek to tap into a new generation of consumers who are viewing 100 million short videos on the site every day.
Google is expected to try to make money from YouTube by integrating the site with its search technology and search-based advertising program.
But the purchase price is also raising comparisons to the mind-boggling valuations that were once given to dozens of Silicon Valley companies a decade ago. Like YouTube, those companies were once the Next Big Thing, but some went belly up.
Google, with a market value of $132 billion, can clearly afford to take a gamble with YouTube, but the question remains: How to put a price tag on an unproven business?
"If you believe it's the future of television, it's clearly worth $1.6 billion," Steve Ballmer, Microsoft Corp.'s chief executive, said of YouTube. "If you believe something else, you could write down maybe it's not worth much at all."
During a conference call to announce the transaction Monday, there were eerie echoes of the late 1990s boom time. There was no mention of what financial measures Google used to arrive at the price it agreed to pay.
The price Google paid may simply have been the cost of beating its rivals -- Yahoo, Viacom and News Corp. -- to take control of the most sought-after Web site of the moment. It was also perhaps the only price that the two YouTube founders still with the company, Chad Hurley, 29, and Steven Chen, 28, and their big venture capital backer -- Sequoia Capital Partners, among the most successful investors in Silicon Valley -- were willing to accept, given that they likely could have continued as an independent company. (The other founder, Jawed Karim, left the company to study at Stanford.)
The deal came together in a matter of days. After rebuffing a series of other overtures, YouTube's founders decided to take a lunch Wednesday with Google's co-founder, Larry Page, and its chief executive, Eric Schmidt. The setting was classic Silicon Valley startup: a booth at Denny's near YouTube's headquarters in San Bruno, Calif. The Google executives threw out an offer of $1.6 billion and autonomy to continue running the business.
YouTube has been compared with Napster, the music-sharing service that was eventually shuttered after a series of lawsuits. While YouTube has made a number of deals with content providers, including one Monday with CBS, many of its users have uploaded millions of copyrighted clips, leading some to question whether Google is inheriting a potential legal minefield. YouTube has said it is different than Napster because it removes content when a copyright holder points out a violation.
"There are some issues with YouTube," Sumner Redstone, chairman of Viacom, said last week on "The Charlie Rose Show." "They use other people's products," he said, alluding to pirated video. "The only way they avoid litigation now is they stop doing it if you call them."
Yet the deal with Google was announced hours after YouTube disclosed a series of deals with major entertainment companies that appeared to reduce the risk that it would become mired in copyright disputes.
The success of the YouTube acquisition probably will lie in embedding video advertising into the clips that millions of people watch everyday from their computers. So far, YouTube's management has been reluctant to include advertising within clips for fear of alienating users.
Monday, Hurley, one of YouTube's founders, appeared more open to experimenting, saying he was even considering testing what's known as a "preroll" -- showing a 15-second ad before a clip -- something he had long derided as potentially ruining the user experience.
YouTube, which has about 60 employees, will retain much of its identity and keep its name and its office in San Bruno, more than 25 miles from Google's headquarters in Mountain View.
Hurley has repeatedly said he would prefer for his company to remain independent. Asked about such comments in a conference call with Wall Street analysts and investors late Monday afternoon, Hurley said his company did want to stay independent, adding that "by working with Google, that's still the case."
Source: http://seattlepi.nwsource.com/business/288106_googleyoutube10.html
A profitless Web site started by three 20-somethings after a late-night dinner party is sold for more than a billion, instantly turning dozens of its employees into paper millionaires. It sounds like a tale from the late 1990s dot-com bubble, but it happened Monday.
Google, the online search company, agreed Monday to pay $1.65 billion in stock for the Web site that came out of that party -- YouTube, the video-sharing phenomenon that is the darling of an Internet resurgence known as Web 2.0.
YouTube, founded in February 2005, had been coveted by virtually every big media and technology company as they seek to tap into a new generation of consumers who are viewing 100 million short videos on the site every day.
Google is expected to try to make money from YouTube by integrating the site with its search technology and search-based advertising program.
But the purchase price is also raising comparisons to the mind-boggling valuations that were once given to dozens of Silicon Valley companies a decade ago. Like YouTube, those companies were once the Next Big Thing, but some went belly up.
Google, with a market value of $132 billion, can clearly afford to take a gamble with YouTube, but the question remains: How to put a price tag on an unproven business?
"If you believe it's the future of television, it's clearly worth $1.6 billion," Steve Ballmer, Microsoft Corp.'s chief executive, said of YouTube. "If you believe something else, you could write down maybe it's not worth much at all."
During a conference call to announce the transaction Monday, there were eerie echoes of the late 1990s boom time. There was no mention of what financial measures Google used to arrive at the price it agreed to pay.
The price Google paid may simply have been the cost of beating its rivals -- Yahoo, Viacom and News Corp. -- to take control of the most sought-after Web site of the moment. It was also perhaps the only price that the two YouTube founders still with the company, Chad Hurley, 29, and Steven Chen, 28, and their big venture capital backer -- Sequoia Capital Partners, among the most successful investors in Silicon Valley -- were willing to accept, given that they likely could have continued as an independent company. (The other founder, Jawed Karim, left the company to study at Stanford.)
The deal came together in a matter of days. After rebuffing a series of other overtures, YouTube's founders decided to take a lunch Wednesday with Google's co-founder, Larry Page, and its chief executive, Eric Schmidt. The setting was classic Silicon Valley startup: a booth at Denny's near YouTube's headquarters in San Bruno, Calif. The Google executives threw out an offer of $1.6 billion and autonomy to continue running the business.
YouTube has been compared with Napster, the music-sharing service that was eventually shuttered after a series of lawsuits. While YouTube has made a number of deals with content providers, including one Monday with CBS, many of its users have uploaded millions of copyrighted clips, leading some to question whether Google is inheriting a potential legal minefield. YouTube has said it is different than Napster because it removes content when a copyright holder points out a violation.
"There are some issues with YouTube," Sumner Redstone, chairman of Viacom, said last week on "The Charlie Rose Show." "They use other people's products," he said, alluding to pirated video. "The only way they avoid litigation now is they stop doing it if you call them."
Yet the deal with Google was announced hours after YouTube disclosed a series of deals with major entertainment companies that appeared to reduce the risk that it would become mired in copyright disputes.
The success of the YouTube acquisition probably will lie in embedding video advertising into the clips that millions of people watch everyday from their computers. So far, YouTube's management has been reluctant to include advertising within clips for fear of alienating users.
Monday, Hurley, one of YouTube's founders, appeared more open to experimenting, saying he was even considering testing what's known as a "preroll" -- showing a 15-second ad before a clip -- something he had long derided as potentially ruining the user experience.
YouTube, which has about 60 employees, will retain much of its identity and keep its name and its office in San Bruno, more than 25 miles from Google's headquarters in Mountain View.
Hurley has repeatedly said he would prefer for his company to remain independent. Asked about such comments in a conference call with Wall Street analysts and investors late Monday afternoon, Hurley said his company did want to stay independent, adding that "by working with Google, that's still the case."
Source: http://seattlepi.nwsource.com/business/288106_googleyoutube10.html