Now on GooTube: The Price Is Right

Two cultures bumped (if not collided) in the wake of Google's $1.65 billion purchase of the Web video site YouTube. First came the Google conference call announcing the sale. It was a standard affair with leaders of both companies expressing appropriate enthusiasm and gabbing about a shift in digital media entertainment. Then came the YouTube version: co-founders Steve Chen and Chad Hurley released their own statement, distributed via their own Web site, just as thousands of others submit videos every day. Filmed in the parking lot by a shaky-handed camcorder auteur, it was an unscripted no-budget production that ended with both of them bent in hysterical laughter about an inside joke that made sense only to videoheads in the YouTube community.

Of course, that community watches about 100 million clips a day and has almost half the market share in the burgeoning field of Net video. So successful is YouTube that even the parties seemingly most threatened by it--record labels and studios whose copyrighted content often finds its way onto YouTube--are making deals with the upstart. (Last week CBS, Universal and Sony BMG added their names to a list that included Warner Brothers.)

In the Internet world, the space between new generations, as if following some perverse variation of Moore's law, keeps shrinking exponentially. Google has its own video service, but it is not nearly as popular as YouTube, built first and foremost with a sense of a community that not only provides the videos but comments on them, promotes them (not just on the site but on blogs and MySpace pages) and basically feels empowered by the process. It's an alternative television universe with the users in charge. The space between YouTube's founders and its fans is non-existent (they started the company because they were frustrated at the difficulties in sharing videos among themselves), and so they were in a better position to create a company that pushed the entire field forward. Google's CEO Eric Schmidt said that Hurley and Chen reminded him of Google's own cofounders--back in the days when Larry Page and Sergey Brin were themselves start-up whippets. Google knows that to take "the next step in the evolution of the Internet" (in Schmidt's words), it has to draw on the best ideas outside its organization, as well as with its own brainy team.

On a basic strategic level, of course, Google has strong interests at stake. Google's VP of corporate development David Drummond notes that the company gets more than 40 percent of its revenue from "partner sites" serving its ads (including AOL and MySpace, both of which were recipients of Google megabucks in deals to ensure access to those users). Google's plans are to devise innovative new ways to sell advertising to the tens of millions of YouTube users--and to step up its existing research efforts in finding new ways to search media content like video.

Was $1.65 billion too much for a two-year-old company with no profits? Just before the deal, entrepreneur Mark Cuban flatly stated that only a moron would buy YouTube at a high valuation. That might not apply if the buyer is Google. "It may not make sense in real dollars, but it makes sense in Google dollars," says Bob Young, CEO of lulu.com, yet another video start-up. "Since Google [stock] is valued at over $100 billion, they probably asked themselves, 'Is YouTube worth 1 percent of Google?' and said yes." If YouTube, with the help of its parent, becomes the platform for the next step in television--drawn from both big content companies and lip-syncing nerds with camcorders--the deal is an out-right bargain.

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