Google Acquires YouTube

A gigantic step toward an even more gigantic goal.Today, video streams are as necessary for college students as their e-mail accounts and ID cards. At any hour of the day or night I can walk down my hall to see classmates procrastinating by watching hilarious short clips, ranging from home-made videos to ridiculous foreign commercials to NASCAR crashes filled with flames and twisted metal. Indeed, free video sharing has grown exponentially in recent years, and no one knows this better than the industry’s leader, YouTube.

The small, sixty-seven person company has just been acquired for $1.65 billion in shares by Google. This popular video archive, a particular favorite of American college students from around the country, will make a sizable addition to Google’s economic empire. To put this number into perspective, MySpace was recently acquired for $580 million, and the only internet based acquisition in the past few years which rivals the YouTube deal is eBay’s purchase of Skype for $2.6 billion.

But was YouTube really worth all that money? Can it really be more valuable than a year of Google’s net income? And doesn’t YouTube have some serious copyright infringement lawsuits hanging over its head?

All the numbers lead me to believe that the acquisition will be fruitful for years to come. Despite Google having a product which competes directly with YouTube, Google Video has clearly demonstrated its inferiority over the past two years. Back in November 2005, Google Video actually had 400,000 more visitors today than YouTube, but since that time, YouTube has overwhelmingly pulled ahead in visitors per day (a 15.9 million person lead), frequency of visits, and average stay per session. Users comment on YouTube’s superior interface, its swifter uploads and better selection of videos.

Phillip Schindler, head of Google’s Northern European division, cited numerous new opportunities that YouTube’s acquisition brings to the table. These opportunities include a significantly expanded customer base, untapped internet advertising potential, sponsorship of specific YouTube content, and displaying commercials before the video starts. Schindler also emphasizes Google’s attention to copyright laws, explaining that the company is developing a new program for tracking copyrighted videos.

Curiously, it seems that YouTube has been one of many first-rate companies with which Google has paired itself recently. Dell, MySpace, Intuit, Adobe, and MTV, BlackBerry, AOL, and Apple have all developed strong ties with Google. What exactly is Google trying to obtain?

“Distribution” says Larry Page. He says that these companies can “reach customers in a way we do not.” Which implies revenue for Google’s one true profit-gainer—AdWords. Each of these companies attracts a different user base—the average Dell user is much different than the average Adobe customer, which is very different than the average MySpace customer. Although only a small percentage of each of these customer bases overlap, all of them can use Google’s revolutionary pay-per-click advertising software.

The concept is truly revolutionary. Many jokingly proclaim that Google is “taking over the world,” and even though it is, it isn’t for the reasons you might think. Sure, they have Google Maps, Google Earth, and a million other incredibly useful products which are provided for free, but in many cases, their products (by themselves) are inferior to their competitors and lose money for Google, but because of AdWords, it doesn’t even really matter.

As PayPal, a subdivision of eBay, discovered this summer, AdWords provides an almost unfair advantage for Google. PayPal has been a leader in the e-commerce business, allowing payments and transfers to be made very securely through the internet for a very affordable transaction fee. But when Google entered the market, they may have offered an inferior product, but they did so for free—and they even offered Google Checkout users a discount on their AdWords software. Any other company would lose miserably, but Google can survive and even turn a profit because of AdWords.

But it’s unlikely that Google is satisfied with being a one-product company. Google will continue to expand, just as earlier dominant companies did. Eight years in, Microsoft was also a one-product company. It’s next product? Microsoft Word. So what will Google’s next product be? It’s way too soon to tell, but through its partnerships, Google will swiftly be gaining experience with many different industries, and will have an incredible customer base to tap into when it does find it’s next big thing.

Sure, YouTube’s acquisition may have been a huge step for Google, but compared to the company’s larger goals, the acquisition is one of many huge moves that are sure to come.