NEW YORK (AdAge.com) -- Google has purchased YouTube for $1.65 billion, the largest acquisition in the search giant's history. The deal, which came together in just a week, unites Google's ad-serving infrastructure with YouTube's position at the forefront of America's new favorite pastime.
It's Official: Google Buys YouTube
The deal is a boon to its acquirer as Google Video never gained market traction. YouTube, by contrast, immediately resonated with consumers who preferred its user-friendly, ad-free model to other services, and it flourished as a platform for its community of users to share, rate and comment on video of their choosing.
"The YouTube team has built an exciting and powerful media platform that complements Google's mission to organize the world's information and make it universally accessible and useful," said Eric Schmidt, CEO of Google. "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."
YouTube's market share now eclipses that of all its rivals combined. For the week ending Sept. 30, YouTube was responsible for a full 47% of all visits to video websites, according to Hitwise. YouTube's No. 1 share was more than double that of MySpace Videos, which had a 22% share. Google Video came in with a comparatively puny 11% share.
"Our community has played a vital role in changing the way that people consume media, creating a new clip culture," said Chad Hurley, CEO and cofounder of YouTube. "By joining forces with Google, we can benefit from its global reach and technology leadership to deliver a more comprehensive entertainment experience for our users and to create new opportunities for our partners. I'm confident that with this partnership we'll have the flexibility and resources needed to pursue our goal of building the next-generation platform for serving media worldwide."
Both reached distribution deals
In a prelude to this afternoon's announcement, both YouTube and Google earlier today reached distribution partnerships with top media companies: YouTube with Universal Music Group, Sony BMG, and CBS; Google with Warner Music Group and Sony BMG. (Google has an existing partnership with CBS, while YouTube recently struck up a similar deal with Warner.)
For YouTube, the partnerships addressed the copyright concerns that any potential suitor would have had to face. But some notable critics were quick to point out that there are plenty more left unaddressed. "Moronic would be an understatement of a lifetime," entrepreneur and sports franchise owner Mark Cuban blogged earlier about the prospect of a YouTube acquisition by Google.
"Don't think for a minute that there won't be lawyers writing songs, having their buddies perform them, and putting them on YouTube, jerry-rigging the number of views via any number of easy-to-do processes and then suing YouTube over it," he wrote. "It will be the YouTube version of shareholder lawsuits."
What would Cuban do?
Rather, Mr. Cuban recommended that Google engage YouTube in a deal similar to the one it struck recently with News Corp. In August, the search leader agreed to pay News Corp.'s MySpace -- and various other Fox Interactive web properties -- at least $900 million for the privilege to display search results and sponsor adverting links on the site.
Notably, the venture-capital firm Sequoia Capital helped both Google and YouTube get off the ground. Last year, YouTube received around $11.5 million from Sequoia, while Google, in its startup days, received an estimated $12.5 million from the firm.
YouTube's average session time is double that of Google Video's, at 18 minutes, 33 seconds in the month of September vs. 9 minutes, 9 seconds for Google Video.
Google is YouTube's second most important source of traffic other than MySpace. In September 2006, 10.7% of YouTube's upstream visits came from Google, while MySpace accounted for 16.2% of YouTube's upstream traffic.
Finding an ad model
During the last several months, YouTube has been busy fleshing out sustainable ad models -- as in those that don't scare away users -- and licensing deals meant to fend off persistent legal issues. What is not clear is whether an acquisition by Google would put off some of the 34 million consumers who flock to YouTube each month.
Two programs recently introduced on YouTube point to the type of marketing the video-sharing site is exploring. Cingular Wireless recently agreed to back a search for YouTube's most talented unsigned bands -- a promotion that struck at the core of rival MySpace, which was founded on the premise of exposing unsigned artists to large audiences online. Walt Disney Co.'s ABC will feature the finalists on "Good Morning America" in November.