Google’s YouTube gamble is vindicated?

By January 5, 2010Exits, Google
Image representing YouTube as depicted in Crun...

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The FT ran this great-to-read headline on New Years Day (minus the question mark which I added for headline integrity).  It was great to read because as I’ve noted before, today’s startups need yesterday’s acquisitions to have been successful, otherwise the buyers won’t come shopping again.  For those that need reminding, Google’s acquisition of YouTube in 2006 was bold by any standards – the FT describes it as one of the boldest and riskiest deals of the decade – not surprising given the purchase price was $1.7bn for a 65 person 18 month year old startup with minimal revenues.

I added the question mark to the post title because when you get into the detail you find that YouTube’s market share performance has been exceptional (growing 7 percentage points in the last two years to 38% even as the number of videos being viewed each month has tripled) but the site has not yet reached profitability.  The FT article ends up quoting Eric Schmidt as saying that YouTube is ‘finally on course’ to return some of Google’s investment.

So, whilst for me it is too early to say that the price tag has been vindicated, if Eric Schmidt is making statements like the one above and the FT is running headlines like this one then it is probably fair to say that Google’s YouTube gamble will be vindicated soon.

In a strange way ebay’s plan to sell Skype for the original acquisition price of $2.6bn is also a vindication of what at the time looked like another very bold deal.  It is true that ebay will have held the asset and grown the company for 4.5 years without seeing an increase in the value, but ebay’s share price performance over that period has been off nearly 40%, making the acquisition of Skype one of the best things Meg Whitman did.

There have of course been a number of less successful acquisitions than these, which I won’t name, but I think we can all take heart from the fact that two of the boldest internet acquisitions of the last ten years are looking in decent shape.  And that is in spite of the credit crunch.

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  • Funny that. I started reading it and thought of the eBay / Skype deal. And you go and mention it!

    I think in both deals it was obvious that the markets were going to be huge though not so much how (if?) they were going to be monetised. Given that Google Video was never going to catch up; my opinion was that whoever Google acquired in that space had to be leader never mind the cost.

    The same thing applied to Yahoo when Google came up with the search ads thing. In the scenario where a HUGE new market develops, I believe the only reason not to buy is if the company thinks the startup won’t lead that space.

    Of course I’ve never had a couple of billion to splash around so such decisions are obvious to me!

  • People often forget that YouTube was an all-paper acquisition. It cost Google 1% of its market cap. When seen in those terms, it was much less the huge bet it is often made out to be. That said, the fact that so few people could generate so huge an exit in such a short space of time is still quite remarkable.