YouTube: Anyone Still Doubt Google's Wisdom?

October 2009 will mark the two year anniversary of Google’s (GOOG) acquisition of YouTube. Before the deal even took place, I wrote that YouTube had the potential to print money. It wasn’t at the time, mainly because YouTube was growing like a weed and the company’s “meager” $11.5M in funding didn’t [somehow] allow it to build the kind of sales organization needed.

Ultimately, with soaring bandwidth and a lack of imminent monetization plan, founders Steve Chen and Chad Hurley sold their Sequoia-backed startup to Sequoia-funded Google, for $1.65B in stock. Read my conspiracy theory suggestion here.

Last year around this time, the entire US video industry was generating about 10 billion video views. Today this figure has climbed to 25 billion and YouTube alone does over 10 billion. Read comScore’s release here.

I can also attest that while YouTube has lots of upside (being kind here folks) to improve monetization, the kinds of advertisers than now advertise alongside our channel has improved exponentially, that’s right, less “Punch the Monkey” or “Press the Fart Button” and more BMW, Absolut Vodka. Of course, I send YouTube a littany of complaints and suggestions, but the fact is: it’s YouTube’s universe and we just stream it… we all need to understand that.

Ultimately, especially in light of the fact that YouTube was a stock deal, I think that Google’s $1.65B acquisition of YouTube might go down as one of the best M&A deals of all time. Maybe it’s time to update this list.

Comments

[Tidy 1:]

I was hoping you could address why the price tag makes more sense once the site has grown even more.

The premise at the time of the acquisition was that this was the rapidly growing giant in the space. This has not changed just because it kept on growing. I would love to see data justifying the price tag based on what % of videos (or even absolute numbers) are being monetized and at what rate they are being monetized.

If the monetization rate for most of the videos remains zero then adding a lot more of them at zero revenue does not justify a price tag it just emphasizes what a problem long term monetization is going to be.

Sep 29 07:01 AM

[Gravity404:]

Last Q alone YouTube had $175 million loss on Revenues of $240 million.

In addition to the $1.6 in stock, how much money has been sunk into You Tube? How much share holder value has been created from the deal?

It seems that ever time I pick up a Biz Mag there are multiple articles about fast growing copy cats. Remember Prodigy and Netscape?

Google has the innovation and the muscle but you can't win them all. They could have created their own platform for the amount of money that's gone into it. And watch out for Apple.

Sep 29 09:10 AM

[whisperonth...:]

I'll take Google as a search engine, but I never click on any ads or paid advertising - it's against my principles.

I'll take Hulu as a video site, and I DO click on some of the ads because they are for products I usually buy.

And so far, I haven't found anything on YouTube, aside from the cute baby videos and the funny pet videos (and the occasional how-to video) that I care to watch, and I never click on their ads either.

I do remember Prodigy, and I loved Netscape. Firefox has come closer to Netscape than the rest. I don't have stock in any of the companies in your list.

Sep 29 09:44 AM

[Avner:]

Two years ago, everyone doubted the YouTube purchase, because YouTube had a lot of viewers but no good business plan.
Today, you say, the purchase vindicated itself because YouTube has, umm, MORE viewers? And about as much of a business plan?

The only data you bring in this article is about viewership. YouTube had the viewership advantage in 2007 as well. Nothing new. It's still failed to prove it can be a viable business, not to mention "printing money".

Sep 29 11:06 AM

[Gravity404:]

whisper...I was pointing out those other companies to illustrate a point, first to innovate doesn't necessarily mean success.

Sep 29 11:22 AM