x
Video services

Google Gone Gaga

I'm with Mark Cuban on the Google (Nasdaq: GOOG) purchase of YouTube Inc. It's dumb.

I understand it's an all-stock deal, so it's being made with monopoly money. So it might not be quite as silly as the eBay Inc. (Nasdaq: EBAY) purchase of Skype Ltd. , which was done with cash. (See Skype's EBubble.)

As Cuban has said, this is nothing more than a traffic acquisition deal, with plenty of legal liabilities for all of the stolen content that gets posted to YouTube.

But here's the really big question I have: If Google's so almighty, why exactly did it even have to look at this deal? It's a major admission of failure of its own video hosting site -- Google Video. This would be akin to Apple Inc. (Nasdaq: AAPL) launching a video iPod, failing to capture enough of the market, and then going out to buy another consumer electronics company to deliver the product. Wouldn't that be kind of embarrassing for Apple?

Yet the Google/YouTube deal receives the accolades of Wall Street and almost no serious critical thought. It's like journalists and analysts are falling all over themselves to explain how synergistic and explosive the whole thing is. It's soooo 1999.

Here's another thing I don't understand. Why has nobody raised questions about the presence of YouTube's largest investor –- Sequoia Capital Partner Michael Moritz –- on the Google board of directors? Did he participate in the vote? What's his personal take on the deal? Light Reading has put calls in to Sequoia and is awaiting a response. At any rate, it should make for some juicy SEC reading –- conflicts of interest and all. I'm awaiting those documents to be filed.

So, that brings us to the next question: If Google actually has to go out and acquire traffic, does that indicate its own organic traffic growth is slowing down? Maybe, or maybe not. At any rate, this boils down to a simple pay-for-market share deal. According to most reports, Google has gained market share with the deal –- it will now be the second-largest destination on the Internet. By combining Google with YouTube, the two sites would have had 101 million visitors in August, according to Nielsen/NetRatings . Yahoo Inc. (Nasdaq: YHOO) sites had 106.7 million and Microsoft Corp. (Nasdaq: MSFT)'s MSN Internet division had 98.5 million.

$1.6 billion is a lot to pay for second place.

Of course, it's not the first time something like this has happened on the Internet. It goes something like this: 1) New application/property attains critical mass; 2) Traffic explodes; 3) competitors get jealous and overpay.

Think, Time Warner Inc. (NYSE: TWX)/AOL Inc. (NYSE: AOL).

And, just as in the Time Warner deal, in the end it wasn't really about the traffic or market share, it was about whether any of it could appropriately be monetized –- and whether too much of the company's stock was given up in the pursuit of money.

Remember, if it sounds ludicrously expensive, it is. And Google has just paid $25 million per employee to acquire YouTube. That sounds pretty expensive to me!

Congrats to YouTube founders Chad "Cash" Hurley and Steve "Cha-ching" Chen –- they have just pulled off the deal of a lifetime. — R. Scott Raynovich, Editor in Chief, Light Reading

Page 1 / 2   >   >>
Michael Harris 12/5/2012 | 3:38:13 AM
re: Google Gone Gaga Spot on Rayno. That fez in the photo is no dunce cap. :)

Compared to the hype, Google Video has proven to be a rather pathetic offering. With YouTube, at least they'll have a more compelling video SDE (shlock delivery environment). As you say, very telling that they had to pay out the nose for it, i.e. buy rather than build.

It will be interesting to see whether Google's weight enables them to make headway on the prickly copyright issues, or whether the Goog will just become the world's largest litigation magnet.

The good news is that Google didn't pay the $30B that Philter predicted. http://www.lightreading.com/do...
sfwriter 12/5/2012 | 3:38:12 AM
re: Google Gone Gaga There seems to be little serious critical thought of Google's business model in general. Aside from AdWords, the majority of the new products Google launches are not market leaders.

The company still derives the majority of its revenue from advertising. Anyone in publishing can tell you what a roller coaster ride that is.
krisman 12/5/2012 | 3:38:03 AM
re: Google Gone Gaga The deal certainly reveals some chinks in the Google armor. Even with the smartest people on the earth, they could not create the best video site as well as the best email, photo, etc.

However, the deal makes sense from the traffic acquisition perspective. If Youtube numbers are to be believed (50M+ users), Google can certainly figure out a mechanism to monetize it. Google itself took four years to figure out the Adwords. News corp's MySpace seems like the deal of the century. Video Ads are sold out on MySpace. This was not the case when News corp bought them.

Only time will tell if this is a good acquisition.
Stevery 12/5/2012 | 3:38:03 AM
re: Google Gone Gaga Xyros getting bought for $3.25B+ with 90 some-odd employees selling friggin' mirrors/MEM's!?!? C'mon guys - let's have some perspective here - our industry is hardly in a position to be criticizing stupid acquisitions for ridiculous valuations.

Au contraire, mon ami. That makes us experts on stupid acquisitions for ridiculous valuations.
handolkim 12/5/2012 | 3:38:03 AM
re: Google Gone Gaga So it's gotten to the point where Mark Cuban - who sold his company of 100 or so employees for $3B to Yahoo is the arbiter of sound business deals? Guess him taking Yahoo for a ride gives him some cred? Maybe he's just jealous? No, no - look at me, ME.

Also, talk about short memories at LR. . . remember the optical bubble? Xyros getting bought for $3.25B+ with 90 some-odd employees selling friggin' mirrors/MEM's!?!? C'mon guys - let's have some perspective here - our industry is hardly in a position to be criticizing stupid acquisitions for ridiculous valuations.
rjmcmahon 12/5/2012 | 3:38:02 AM
re: Google Gone Gaga re: Guess him taking Yahoo for a ride gives him some cred?

Actually it does. He sold broadcast.com to a bunch of novices running YHOO at the time, put collars on his overvalued YHOO position which tanked not too long after, and made out like a bandit. Pretty smart move in hindsight.
falsecut 12/5/2012 | 3:37:59 AM
re: Google Gone Gaga "Spot on Rayno. That fez in the photo is no dunce cap. :)"

Is that what that is? Looks like he's a cone head in my email. Maybe another picture is in order? Good article. He writes better than he photographs ;)
tsat 12/5/2012 | 3:37:56 AM
re: Google Gone Gaga
Lets remember the ultimate folly from the .com boom:

[email protected] buys Blue Mountain Greeting Cards for $780 million.

http://news.com.com/2100-1040-...

Scott Raynovich 12/5/2012 | 3:37:56 AM
re: Google Gone Gaga >Lets remember the ultimate folly from the .com >boom:
>[email protected] buys Blue Mountain Greeting Cards >for $780 million.


Good one, tsat. Hey, why don't you give us your list of "Top Ten Bubble Boondoggle Deals" ?!
optiplayer 12/5/2012 | 3:37:48 AM
re: Google Gone Gaga Sticking to just optical/telecom equipment deals I think the following were notable (in order of absurdity).

10. Ciena - Cyras (2.6B)
9. Sycamore - Sirocco (2.9B)
8. Nortel - Qtera (3.25B)
7. Nortel - Xros (3.25B)
6. Cisco - Cerent (6.9B) this is especially noteworthy as it really set the value for the coming optical IPOs (Sycamore, Corvis, ONI, etc.) and acquisitions. It would have been higher on the list but Cerent actually produced for awhile while most of the other didn't.
5. Lucent - Ascend (24B)
4. Nortel - Alteon (7.8B)
3. Lucent - Chromatis (4.5B)
2. JDSU - E-Tek (15B)
1. JDSU - SDL (a stunning 41B)

Obviously this list ignores the myriad of Internet deals like Yahoo-Broadcast.com, AOL-Time Warner, etc but it totals to over $110B...
Page 1 / 2   >   >>
HOME
Sign In
SEARCH
CLOSE
MORE
CLOSE