Google snaps up YouTube

Today’s big news is that Google today bought online video sharing site YouTube for $1.65 billion, Google’s largest purchase to date.

Although YouTube is still very unprofitable, it is a compelling buy for Google, which has had some success with its own video service, but nothing that comes close to YouTube’s popularity in the space.

According to unique audience figures from Nielsen/NetRatings, Google’s video service has some 18.8 million users globally, while YouTube is watched by some 51.4 million. In more specific regions the difference is even starker. Google’s key market of the US has 13.5 million users of its video service (in an audience that totals some 97.4 million), while YouTube has an audience of 34 million.

But as any John Hughes film fan knows, popularity contests are not the best measure of what's really cool. If NetRatings' figures are right, Google has paid some $31.90 per YouTube subscriber—a fairly high subscriber acquisition cost in most other industries, especially on a subscriber base that has yet to demonstrate a profit.

In any event, this purchase doesn’t seem to be Google’s last stop on the acquisition trail. Eric Schmidt, the CEO of Google, called the purchase “One of many investments that Google will be making to ensure that video has its place” in the future of the Internet.

YouTube had initially made its name as a typical California dot-com cowboy, hosting home-made videos that spoke to the voyeuristic heart of the Internet, and copyrighted material owned by the likes of Universal Music. But it has been over the last several weeks preening itself for a big buyout. Part of this involved announcing lots of legit deals with the very big companies that it had initially offended—SonyBMG, Warner Music Group, Universal and CBS among them; putting lots of buzz into the ether about potential suitors like Microsoft, Yahoo and others; and now the Google purchase completes the ascendancy. It’s clear that its backers have made a packet; it will be worth watching how—and if Google converts its $1.65 billion into profit, too.

Here’s Google’s audio webcast
of the announcement.