We all love it! We all use it! We where glad Google did it! But… What do you think? Was Youtube aquired by Google only so that nobody else would get’em? Informations show this might be true.. An interesting move or obvious ? Is loosing money ok for a giant like Google only to have a presence on the market with a product that is so popular and yet still not able to monetize itself? It appears so.. Read on for more information.
It is a known fact that Youtube is making Google loose money. They have yet to realize how to make profit out of the video giant that has more then 100 billion unique visitors only in the US. They’ve been trying to monetize it in several ways such as experimenting with a wide range of advertising methods and models–everything from prerolls to overlays.
Google bought Youtube for $1.65 billion. Eric Schmidt (Google CEO) admitted that, 3 years ago, he told the Google board that Youtube was worth around $600-$700 million. It is unclear why Google accepted this acquisition.
Part of Schmidt’s arguments were that, if the company (Youtube) is valued at $600-$700 million, then if Google would not offer a much bigger price for it, other companies such as Microsoft would buy them off and walk away with something that Google may want.
Was Youtube bought only so that other giants in the industry would not get them?
Did Google make a bad decision?
Here is an edited excerpt of Schmidt’s deposition:
Stuart Jay Baskin, a Viacom attorney: And what was management's valuation? Schmidt: Much lower than we paid for it. Baskin: And how was that communicated to the board? Schmidt: I told them. Baskin: So why don't you tell us what you remember telling the board in connection with the valuation? Schmidt: I believe YouTube was worth somewhere around $600 million to $700 million. Baskin: And you communicated that to the board? Schmidt: I did. Baskin: Of Google? Schmidt: I did. Baskin: What methodology did you use to come up with that number? John P. Mancini, an attorney working for Google, objects. Schmidt: My judgment. Baskin: Was it based on cash flow analysis? Comparable companies? What were you using as the basis for your judgment? Mancini objects. Schmidt: It's just my judgment. I've been doing this a long time. Baskin: So you orally communicated to your board during the course of the board meeting that you thought a more correct valuation for YouTube was $600 million to $700 million; is that what you said, sir? Mancini objects to characterization of the testimony. Schmidt: Again, to help you along, I believe that they were worth $600 million to $700 million. Baskin: And am I correct that you were asking your board to approve an acquisition price of $1.65 billion; correct? Schmidt: I did. Mancini objects. Baskin: I'm not very good at math, but I think that would be $1 billion or so more than you thought the company was, in fact, worth. Mancini objects. Schmidt: That is correct. Later... Baskin: Can you tell us what reasoning you explained? Schmidt: Sure, this is a company with very little revenue, growing quickly with user adoption, growing much faster than Google Video, which was the product that Google had. And they had indicated to us that they would be sold, and we believed that there would be a competing offer--because of who Google was--paying much more than they were worth. In the deal dynamics, the price, remember, is not set by my judgment or by financial model or discounted cash flow. It's set by what people are willing to pay. And we ultimately concluded that $1.65 billion included a premium for moving quickly and making sure that we could participate in the user success in YouTube.
