googlesacquisitionofyoutubefor$1.65billion.docVIP

Google’s acquisition of YouTube for $1.65 billion A good decision? FINAL PAPER for MSE 455 Professor: Burke Robinson Submitted by: Greg Warman STANFORD UNIVERSITY December 6th, 2006INTRODUCTION The Decision On October 9th, 2006 the business community enthusiastically received the news that Google – the King of Internet Search – had purchased YouTube – the King of Internet Video – for a staggering $1.65 billion. In the week of rumors leading up to the announcement Google’s stock climbed 7% on the NASDAQ (to an equally staggering $429 per share giving this eight year-old company a market capitalization of $131.3 billion – a rarefied position shared with the likes of venerable giants like Microsoft [Market Cap = $286 billion] and Cisco [Market Cap = $162 billion]). With no other major news coming out of Google that week, it’s clear that the market in its famously efficient way evaluated the acquisition and gave it resounding approval. But what was truly behind the market’s euphoria? After learning the tough lessons of the first Internet bubble, had investors become savvy in understanding web-based business models and rapidly discerning great deals from bad? Or was Google riding a virtually endless stream of goodwill extending from its IPO in January of 2004 when investors previously burned by Internet company stock-holdings, suddenly found the salient exception that enriched. Consequently, perhaps all Google’s gambles will be accommodated with a mixture of optimism and tolerance. Or perhaps the nature and size of the deal signaled that the spigot controlling the Valley’s Venture Capital was about to turn on again after five long, painfully dry years. One could argue convincingly for any of the above, but certainty remains elusive. Nonetheless it is this context that one must consider when attempting to analyze Google’s decision to acquire YouTube. Given the forces at play in the Internet world, the visible trends, and the likely strategies fo