$1.65bn - What a Bargain

Google’s purchase of You Tube is a snip at the $1.65bn asking price.

The true value of a video sharing site like You Tube has not been realised yet and Google has been wise to move in and snap up the best player in the market before one of its rivals did.

If you want to buy a social network site now you have missed the boat. Rupert Murdoch paid a handsome sum for MySpace and anyone who follows will find the market highly inflated because of this.

The purchase does suggest that Google Video has not exactly been setting the world on fire and Google has pretty much admitted this by coughing up to buy You Tube. But when looking at the $1.65bn price tag take into account what Google has bought - in an all share deal, so not even for any hard cash.

More than 100m clips are viewed on You Tube every day - that is a lot of eyeballs. The beauty of the site is its community feel and if Google can harness that, whilst overlaying a revenue model such as its highly successful adWords programme or a similar model, then £900m odd is going to look like a wise investment very quickly.

The deal also pushes Google into the video market, taking it beyond its traditional roots. As a forward looking company Google must realise that text is only a stop-gap online and being at the forefront of the video revolution will only maintain its market dominance. The search giant is keen to offer its advertisers more than just text ads and this purchase if handled correctly, will allow Google to do just this.

Google does face some hurdles and comparisons have already been made between You Tube and Napster in the early days of music online. The difference is that the TV and film industry has witnessed the distress that was caused to the music industry as it resisted technological change rather than embracing it. You Tube has already struck licensing deals with numerous entertainment companies such as Sony BMG Music Entertainment and Universal Music Group to allow people to watch videos on the site and advertising deals will not be far away.

The test of the deal be how Google handles the company that it has just bought. Murdoch is realising that buying a social network and being lauded as forward thinking is easy, but integrating it into a commercial organisation is a very different game. I feel that Google is going to have much less trouble with You Tube, especially as the public is used to video content carrying ads and its competitors such as MSN and Yahoo! can only be fuming at today’s news and wishing their pockets were as deep as Larry and Sergey’s.