TechCrunch was there first and then WSJ substantiated the new price in the much-rumored GOOG-YouTube talks. So, the #1 online company captures the #1 online video player to cement its position. $1.6B is not a huge number for a strategic acquisition. No big deal, right?
Perhaps, but there is another interpretation. This is the first big acquisition that GOOG may do and it may signal a marked change in strategy. Yes, there was the $1B to get a stake in AOL and dMarc Broadcasting has $1B performance-based payout but here we’re talking straight M&A.
A while back I was having lunch with a friend from Google corp dev. He outlined the then Google take on M&A the following way:
- We don’t like to pay much for innovation because it’s likely that the smart people at Google are already working on something similar.
- We don’t like to pay much for technology because we’ve found out that much of the tech that we acquire has to be rebuilt to operate at Google scale and fit with the rest of our operations.
- We don’t like to pay much for scale (customers/eyeballs) because anything we launch gets pretty big pretty fast.
Well, in going after YouTube, Google will be paying for scale. It will also be the first time they would be going after a competitor that has trounced them in the market. According to the last comScore data that I checked a couple of weeks back, Google was towards the bottom of the top 10 video sites list with about 10x less streams than YouTube.
Could the acquisition be interpreted as a sign of weakness? Google wasn’t able to go it alone, even though it tried, and is now forced to buy their #1 competitor? If so, where does this end? For example, Facebook has >40x the uniques of Orkut. Buy Facebook? Is large-scale M&A going to play a big role in Google’s future growth?
An equally valid interpretation is that buying YouTube is actually a sign of strength–GOOG stepping out of Not Invented Here mode, acknowledging that they don’t have all the answers and they are not the best all the time (but have a lot of cash with which to fix that by buying whoever is #1 in a strategic area).