There has been no shortage of coverage and commentary on Google's acquisition of YouTube this week. Without content assets or unique technology, the acquisition has been viewed with a skeptical eye by many in the media and analyst communities. This is made worse by liabilities perceived in YouTube's video licensing issues, which many believe will truly surface once the company is either 1. monetized or 2. adopted by a deep-pocketed parent. Option two just happened, and option one is no doubt next.
Similarly, YouTube's explosive traffic growth, which could be viewed as a selling point, has been mostly driven by viral marketing among younger generations, whose fickleness and herd mentality can deflate traffic figures just as quickly as they've grown. (MySpace faces a similar issue, but is more sticky because of the sunken time investments of building a profile and network of friends.)
In light of these deficiencies, the seemingly imbalanced price that Google paid for YouTube is telling of its valuation on the future of online user-generated video (and the capability to experiment with it at this early stage). The price tag more likely represents the hit Google was willing to take to keep YouTube out of the hands of its formidable online media competitors, including Yahoo!, Microsoft and News Corp. Google could also have other plans up its sleeve such as positioning as a wide-scale technology and distribution partner for video content owners and publishers. The deal positions it to become the exclusive provider of paid search on YouTube (similar to its deal with MySpace).
Google could also value YouTube as a test bed for ad placement with online video content, given its leadership position in online paid search combined with the medium's explosive growth. ComScore reported that 106.5 million people, or three out of every five U.S. Internet users, watched streaming video in July. Google Video, meanwhile, has the seventh most monthly user visits, according to comScore, with YouTube placing third on the list. YouTube's unique monthly user visits also grew from 12.8 million in March to 34 million in August, according to Nielsen/NetRatings.
So, there is a lot of potential here, but a lack of a clear ROI and a somewhat risky proposition has made it unclear if it will pan out, and a tough sell for many onlookers. Here is a sampling of commentary from both sides from Kevin Ryan, Tristan Louis (an interesting comparison to other deal sizes), Mark Cuban, Search Engine Watch (a good roundup of coverage), The New York Times and Red Herring.