Tuesday, October 10, 2006

YouTube suckers Google? Or gets swallowed?

Google has announced that they have acquired YouTube for US$1.65 billion in Google stock. YouTube is to retain it's brand identity (arguably one of its best assets, other than its user base) and is seen as “strengthening and complementing Google's own fast-growing video business”.

Mark Cuban is sure that Google will see themselves sued by copyright owners' who have had their rights infringed by YouTube videos - certainly that will be a more attractive option as Google has deep enough pockets to be able to afford the payouts. The real interesting question is whether they allow themselves to be open to this, or start to police the YouTube community and prevent sharing of videos that do not meet their standards. From this point of view, perhaps Google was suckered into spending too much for YouTube?

Some have pointed out that the fact that they have spent so much to acquire a company providing something they already had an existing product for is a big deal. Some had already said that YouTube beat Google Video hands down.

Clearly they see internet video as something vital to their business, perhaps even the next wave of web content. We are certainly starting to see more companies using video on their websites, and the ease of use of products like YouTube means that getting passionate users to share videos is a very real marketing tactic, perhaps even to become the top new medium for 'cool' ads.

Whatever happens, this will be an interesting move, but it shouldn't be forgotten that it also merges two of the largest players in the market - giving them a size comparable to MSN Video. When consolidation happens on this scale, it can drastically affect the market (see Gartner's Consolidation Matrix). This leaves us with two superpowers fighting over market share, and once again pits Google vs Microsoft. It would be depressing if this was the way we can expect all new internet markets to go ... but it certainly was a good result for YouTube's founders (and VCs!).