Google blows a cool $1.65 billion

The Internet economy sometimes seems to work in an inverse way to the rest of the world. Google announced that it would spend $1.65 million on acquiring a one-year-old loss making company and its stock price goes up. Perhaps, to use the dot com-boom phrase – “we just don’t get it”.

Google announced yesterday that it would be acquiring YouTube for $1.65 billion, retaining separate offices and all 67 employees – many of whom will be pretty happy today.

Eric Schmidt, Google chief executive said “Our companies share similar values; we both always put our users first and are committed to innovating to improve their experience. Together, we are natural partners to offer a compelling media entertainment service to users, content owners and advertisers.”

Google has struggled with its own video offerings, whilst YouTube has surged over the last year, partly due to its ‘cachet’ of being radical and allowing its users to flout just about every instrument of copyright law around. Of course this could not continue, so YouTube needed to find a partner – a rich partner – very quickly or go the way of Napster, which was bogged down and bankrupted after an almost similar growth spurt by attacks in the courts from the record industry. Although the world has moved on now, the media industry has seen the power of the Internet and would in some cases rather be a part of the cash cow than fight it.

Prior to the takeover – and probably contingent – YouTube signed a number of distribution deals with media companies on the same day as it inked the deal with Google.

The challenges for Google are to get a return for the investment as quickly as possible, with Google probably best placed to implement this on the internet with the advertising deals it already has in place. But it is still a tall order. It also indicates that Google’s all important reputation of turning anything it ‘has a go at’ into an instant success is tarnished – after all spending $1.65 billion is not exactly small change, especially as Google was already in a similar game.

For others the outcome will be interesting – both Google and YouTube use different technologies for rendering video. Google using its own proprietary player and YouTube uses the Adobe Flash 9 based player. The direction that Google-YouTube takes over the next few months will generate great interest for Adobe watchers.

The outrageous purchase price indicates that all that was learnt in the post dot-com era has been thrown out of the window.

The year will go down as Dot-Com 2.0

Let’s hope this isn’t followed by Dot-Com-Bust 2.0