Did Google Overpay for YouTube?

5 03 2010

When the $1.65 Billion, all stock, deal for YouTube closed on 10/09/06 there were a lot of industry experts saying that Google had overpaid for a company that had barely any revenue to show.

Fast forward to today as Mark Maheney of Citigroup publishes his estimates of YouTube’s revenues:

  • $727 Billion for 2009
  • $945 Billion projected for 2010

That deal doesn’t look so bad now!  What would you be willing to pay to dominate the market for video over the Internet? First mover advantages are generally a good thing.  They are an even better thing when there are network-effect market dynamics in place:

  • The more video that gets posted to YouTube, the more attractive it is to new publishers.  Why would you publish your video anywhere else?
  • It is not very easy to move your video to some other site.  Not that one is locked in, but it would be cumbersome to move to another site.
  • With all the video available, it’s the first place viewers look — stimulating publishers to publish there first, and so forth in a cycle



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