Google buys YouTube rather build Google Video

For a company that famously has built everything from scratch rather than bought its business from competitors, it was surprising to read last week that Google has bought YouTube for US $1.65 billion in Google stock. It is reported that Google even developed its own in-house financial accounting system instead of using one of the industry software packages.

In the past 12-18 months, the founders of YouTube Chad Hurley and Steve Chen (and you guessed right the business started out in a garage in California)have created a simple to use, website to which anyone can upload video clips in order to share them. Every day YouTube users upload 65,000 new videos and watch more than 100 million clips.

In some ways this is Web 1.0 meets Web 2.0.

Like dozens of other independent video sharing sites, YouTube has never made a profit, incurs significant costs from storing and delivering videos and as yet has not made any real revenues as such. Then there is the issue of copyright. Many of the video clips stored by YouTube are not the intellectual property of the users that uploaded them onto the site.

For YouTube, Google's search-related advertising model should help the firm start to monetise its audience. Google can immediately add YouTube to its network of sites for which it sell advertising. YouTube will apparently retain its separate identity (for now at least).

Google has bought a market leader. According to web traffic statistics, YouTube has four times as many visitors as Google Video and streams nine times as many video clips. It has been reported that not only Microsoft and Yahoo! were interested in buying YouTube but that News Corp and Viacom, owners of competitive file sharing sites wanted YouTube.

Overall, this deal strengthens Google's market position and may well indicate a change in strategy away from building to buying.

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