Mark Cuban has "Some Thoughts on YouTube and Google". Mark is right on target saying Google would be crazy (moronic) to buy YouTube, but brilliant to do an exclusive advertising deal.
Google makes money selling advertisements on web traffic, not just search results pages. All they want from YouTube is traffic so they can sell more ads. They can get that with an exclusive advertising deal with some guaranteed minimums, just like they did with MySpace. Why should they buy YouTube and take on the lawsuit risk?
CREDIT: YouTube image courtesy of ValleyWag. (I don't want any copyright lawsuits)
Acquisition versus Exclusive Deals
In the technology business many times it is better to do a strategic partnership that allows joint selling and revenue splits that benefit both companies, rather than a full blown acquisition. Why? Many reasons that apply to all technology acquisitions, not just YouTube;
- The incentives to perform are still there for both companies, including their sales people. Once a small company gets acquired by a big company all the fun and incentives go away...and the founders that made it all happen tend to leave.
- Flexibility to do another deal with an even hotter company that may emerge. What happens if YouTube falls out of favor and another hot company emerges? Google would be stuck with YouTube...and couldn't really compete with itself.
- Risk is minimized. Anytime you do a technology acquisition there is legal risk for things like patent infringement, copyright lawsuits, antitrust suits, employee lawsuits, etc. Revenue deals provide all the benefits with none of the lawsuit risks.
- Focus on core business is maintained. Acquisitions take up lots of management cycles and divert attention from your core business. That other business might look interesting but it probably will not pay off like your core business. Conversely, many acquisitions fail because the focus does remain with the core business...and the small acquisition gets no attention...the founders leave...and the small company fades into oblivion.
What is gained by an acquisition? I have been involved in lots of acquisition discussions over the years...on both sides of the table. From the small company perspective there are lots of benefits to being acquired. The discussion is usually only about timing and price.
From the big company perspective there are a different set of questions. I always ask "What will we gain that we don't already have with our strategic relationship?" and "How much is that worth?" and "How will we avoid distraction from our main goals?".
Try before you buy. It is always a good idea to work together in a strategic partnership before jumping into an acquisition. Take some time to make sure your customers see value in the partnership, that your vision and goals line up, that your working styles match, and that the employees, especially the founders, would stay on in the event of an acquisition.
Small acquisitions carry less risk. They cost less money and involve fewer customers and employees. Many times the benefits of acquisition are clear. Small is a relative thing. Paying $1.6 Billion for YouTube is a huge amount of money for a two year old company with no revenue. But for Google it represents a little over 1% of their market cap. Maybe they think it is a "no brainer". They might want to think again about how much the copyright lawsuits might cost.