3 May 2007

Google, YouTube: A vision of accelerating change

By Jim Pinto

A couple of months ago, Google bought YouTube—a startup company that was less than 2 years old—for $1.65 billion in stock. This gives valuable insights into the way ongoing biz-tech shifts are changing the landscape, a financial mirror of global things to come.

YouTube is a popular free video sharing web site which lets users upload, view, and share video clips. The company had 67 employees, and was founded by PayPal employees Chad Hurley (29) and Steve Chen (28) in February 2005—they became multi-millionaires in 18 months.

VC firm Sequoia Capital (Don Valentine is still senior guru) put in $11.5 million for a 30% stake in YouTube, and got $495 million in Google stock—a 42,043% return in just one year. That pays for a lot of “venture” mistakes, and then some. Consider this: Would you have invested that amount of money in a couple of guys with a good idea?

This acquisition was a good deal for Google—a stock swap, rather than cash (and they still have lots of cash). Google’s market value was about $150 billion, so YouTube was valued at about 1%, and the $1.5 billion was fair. In the time, that the deal was still rumor, and before it became reality, Google’s market value went up over $3 billion—so Google was actually “paid” by investors to buy YouTube. Today, it is still in the $150 billion region, but that is no real measurement of what is to come. Indeed, many analysts think Google is becoming “too strong.”

YouTube is still the 14th most visited site on the Internet, and Google is No. 3—today the combination is easily No. 1. Yahoo is No. 2 in this constantly shifting race, and some say the leader is now MySpace (acquired by Rupert Murdoch’s News Corp for $580 million). Amazon.com, eBay, CNN, and Go.com (owned by Disney) are all in the top 10.

What YouTube’s meteoric rise shows is people want to watch video-clips—not only the videos you make at your son’s birthday party, but also missed news, yesterday’s TV shows, special events, and speeches. For example, go to YouTube.com and search for “Al Gore on Global Warming,” and you will find several videos. Then look for news you may have missed yesterday, or last week, and you will find video clips that tell the story.

YouTube shows lots of copyrighted material, which is part of its appeal. Now how will Google deal with all the possible copyright lawsuits? The cash-strapped start-up was a hard target; will Google’s deep-pockets make a difference? The lawsuit scrambles have already started.

Google could, with a click of a mouse, filter out all copyrighted material. However, the broadcasters and media producers are all salivating at the possibility of tens of millions of new viewers. They will be anxious to jump on new bandwagons by making any deal with Google that will give them at least some payback. Hey, something is better than nothing. The video wind is shifting.

So, how can video clips be used in the industrial automation environment? Video surveillance of some key automation procedures have been available with many HMI software packages; but who will come up with a twist that makes the difference between something that is nice to have, versus a benefit the plant engineer must have? Therein lies the rub.

Related links:

• Google Press Release – announcing the acquisition of YouTube:
  http://www.google.com/press/pressrel/google_youtube.html
• If you can’t beat them, buy them (the Google/YouTube background):
  http://www.systemvideoblog.com/2006/10/if_you_cant_bea.html
• YouTube Video – A Message from founders Chad and Steve:
  http://www.youtube.com/watch?v=QCVxQ_3Ejkg

Behind the byline

Jim Pinto is an industry analyst and founder of Action Instruments. You can e-mail him at jim@jimpinto.com or view his writings at www.JimPinto.com. Read the Table of Contents of his book, Pinto’s Points at ww.jimpinto.com/writings/points.html.