Oct 8, 2006

[Google] YouTube for Sale?

Media buzz in recent days has been talking about a number of Google actions, one of the more notable ones being talks of Google considering buying out YouTube, although for how much exactly is anyone's guess. Current reports tag the price at a total value of $1.6 Billion in a mixed assortment of cash, stock and other assets. While Google is one of the first companies to get associated with an actual price tag, other companies like Yahoo! and Microsoft have also been reported to be visiting the video sharing company.

YouTube logoWhy buy YouTube? That is definitely an interesting question. Let's face it - YouTube is a free service without an actual revenue model at this point. All they do is host videos to make it easier for people to share it across the web. They've had a few spats related to copyright concerns because of the material being uploaded but there hasn't been much else about that. They do control majority of the video sharing market with about 46% market share with MySpace following with about 21.2% and Google Video trailing third with 11%.

Some reports about the proposed acquisition theorize this may partly be in a response of Ruport Murdoch's purchase of the social networking site MySpace, another site that did not have a real revenue model which is now being valued at over $2 billion.

We have to go back to Google's core business, which is search and context-driven advertising. The biggest bet is combining YouTube's market share with Google's expertise in the online advertising arena does present a good way for YouTube to become highly lucrative. Then again, a lot of what Google does may not seem immediately profitable such as the rapid release of so many products over recent months, but hints at a greater strategy beyond all this.

An office associate of mine referred to this kind of thinking as "pull accounting" where you focus more on thinking of other ways of bringing revenue in despite initial capital expenditure as opposed to "push accounting" where one attempts to push costs away by relying on a more conservative growth strategy.

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