Google Announces Acquisition of YouTube for $1.65B

As predicted, Google announced acquisition of YouTube for $1.65 billion in an all-stock deal, making the transaction tax-free for YouTube shareholders. You can listen to the Webcast here. It would be difficult to exaggerate the impact this acquisition will have on the Internet landscape, especially the impact on Google's chief competitors' Yahoo! and Microsoft. The acquisition is expected to happen in Q4, and the number of Google shares to be issued in the transaction will be determined based on the 30-day average closing price two trading days prior to the completion of the acquisition.

YouTube has a 45% marketshare of online videos, and the acquisition will dramatically improve Google's video-sharing service. Approximately 100 million videos are available on YouTube on any given day, with 65K new videos added every day. According to Nielsen Net Ratings, YouTube enjoys 20MM unique visitors per month.

The acquisition leaves Microsoft and Yahoo! in a more precarious position to compete with Google in the online space. It was rumored both were considering acquiring YouTube, but both passed in favor of starting their own video-sharing service. Microsoft launched their own video service called Soapbox in beta on September 16th, with little success. In reaction to today's announcement, Whitney Burke, a spokeswoman for the company stated:

"We are excited about the potential we are seeing in the beta of Soapbox on MSN and believe building our own solution is a more cost-effective way to compete in this new space."

It is good that Microsoft is excited about its own service: apparently no one else is. Microsoft has more cash in its war chest than Google, but emphasizes they are taking a "more cost effective way" to compete, but how well does this serve the company and shareholders when they are losing the war. Pathetic. But then again Microsoft has always been followers, and not innovators, and that may have worked in the past, but the disruptive nature of the Internet will ultimatetly prove that approach unsuccessful.

However, the scope of this acquisition goes beyond the Internet, and affects the media space in general. Tom Brokaw lamented tonight on "NBC Evening News" in response to the acquisition "They don't build media companies like they used to." No they don't Tom, so you might as well get used to your declining viewership. You may not get it, but your employer apparently does, as NBC folded in its request that YouTube pull its clips of "Saturday Night Live," and instead cut a deal with YouTube to allow users to post content from NBC programs.

One of the reasons I love working in the Internet industry is that it is so disruptive, and although Google is now benefiting from this, it could one day become the victim of it. What is good for the goose, is good for the gander, and I look forward to writing about the company that first disrupts Google. I'm not holding my breath.

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