Oct 10, 2006, 0:21 GMT
San Francisco - Internet giant Google Inc announced Monday that it had reached a deal to buy web video newcomer YouTube Inc for 1.65 billion dollars - the biggest purchase in its history.
The Google headquarters in Mountain View, California, in a file photo. REUTERS/Clay McLachlan
The transaction marks another spectacular Silicon Valley success story. YouTube was founded in a Silicon Valley garage in February 2005 and has leapt to a commanding position in the internet video market, with technology that allows anyone with a web connection to post, share and view videos online.
Sequoia Capital, a venture capital firm which also made early stage investments in Google and Yahoo, stands to reap a windfall from the deal. Over the last year the firm invested 11.5 million dollars for an undisclosed stake in YouTube.
Google said that YouTube, with 65 employees, would continue to operate independently, but that the companies would 'focus on providing a better, more comprehensive experience for users (and) new opportunities for professional content owners to distribute their work to reach a vast new audience.'
The deal had been widely expected after rumours of advanced negotiations began circulating late last week.
YouTube currently boasts 34 million US visits a month, shows 100 million videos per day and uploads 65,000 new clips every day.
The acquisition means that Google will likely become the second most visited site on the Internet with 101 million unique visitors, behind Yahoo Inc's 106.7 million visitors but ahead of Microsoft's MSN Internet division's 98.5 million, according to Nielsen Net Ratings.
'The YouTube team has built an exciting and powerful media platform that complements Google's mission to organize the world's information and make it universally accessible and useful,' Eric Schmidt, Chief Executive Officer of Google said in comments echoed by YouTube's head.
'Our community has played a vital role in changing the way that people consume media, creating a new clip culture,' Chad Hurley, CEO and Co-Founder of YouTube said. 'By joining forces with Google, we can benefit from its global reach and technology leadership.'
The announcement of a deal followed independent statements from both companies earlier Monday that they had signed separate agreements with Universal Music Group, Sony BMG, Warners Music and US television network CBS, to showcase music videos and other short form content on their sites in exchange for a share of advertising revenue.
Despite its success as the most popular video-sharing site on the web, YouTube's reliance on copyrighted material had exposed it to criticism and potential legal struggles, which the deals announced Monday should remedy.
Analysts said the deal between the two internet darlings could allow Google to dominate the burgeoning arena for online video, which many analysts believe will within a few years compete with traditional television as a viewing media. It also gives Google a massive trove of new ad-generating content, and allows it to offer a greater range of products to advertisers.
'A lot of people are shocked by the 1.65-billion-dollar price, but if you really understand what all of us are working on, we are creating a new medium called internet television and that medium will be as compelling and as valuable as the medium of the of web itself,' Dmitry Shapiro, founder of Veoh Networks, a YouTube competitor, told the San Jose Mercury News.
Until now, Google's previous acquisitions have all been for early stage start-ups with new technologies. The purchase of a company with a proven technology and ready-made audience marks a departure for the stratospheric leader of online search.
However the all-stock deal represents little risk for the company, which is valued at some 130 billion dollars, has a hoard of liquid assets close to 10 billion dollars and saw its market capitalization rise by 4 billion dollars as investors greeted the rumours of the YouTube deal.
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