You think
Google (Nasdaq: GOOG)
paid too much for YouTube? Well, you're in good company:
CEO Eric Schmidt knew all along that he was overpaying -- by
a lot.
CNET News, a tech publication owned by
CBS (NYSE: CBS), got hold of court documents
from YouTube's long-running copyright battles with
Viacom (NYSE: VIA). In these legal
transcripts where Schmidt spoke under oath, you see the
magnitude of Google's willingness to pay
waymore for YouTube than the company was worth.
The video-sharing site was worth no more than $700 million
when Google launched its $1.65 billion offer, by Schmidt's
own estimate. But YouTube was -- and still is -- a
fast-growing phenomenon that draws millions of eyeballs every
day, and the unrealized potential to make money and control
online traffic patterns was worth an extra $1 billion.
Schmidt explained that extraordinary circumstances
demanded extraordinary measures. "In the deal dynamics, the
price is not set by my judgment or by financial model or
discounted cash flow," he said. "It's set by what people are
willing to pay. And we ultimately concluded that $1.65
billion included a premium for moving quickly and making sure
that we could participate in the user success in
YouTube."
In other words, that extra billion kept YouTube out of the
hands of
Yahoo! (Nasdaq: YHOO),
Microsoft (Nasdaq: MSFT), and possibly other
companies with ambitions of online dominance.
News Corp. (NYSE: NWS) had recently paid $580
million for social media site
MySpace, and other media giants might have had their eyes
on YouTube. If Google hadn't made this serious commitment
right away, we might have seen a multi-party bidding war
erupt -- and YouTube might have been a
Disney (NYSE: DIS) property today, for all we
know.
Stranger things have happened.
Some might say that Google has yet to figure out how to
make money from this expensive acquisition, but I
respectfully disagreefor a
numberof
reasons. YouTube was a smart buy for Google -- if you
take a
suitably long viewof the investment.
Which side do you take, dear Fool? Share your views in the
comments below.
This article was originally published as
How Google Stopped a Bidding War for YouTubeon
Fool.com
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reserved.
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