Google’s Acquisition of YouTubeTopics we will be covering:GoogleGoogle’s Dual Class Share StructureSlide 5Google’s RevenueGoogle VideoYouTubeSlide 9Google’s Previous AcquisitionsSynergies behind this Acquisition:Synergies behind this AcquisitionSynergies Behind the Acquisition:The Deal:The AftermathHedge Fund Strategies“Indemnification Obligations”Catch-22Slide 19So what do you think?ReferencesQuestions?Google’s Acquisition of YouTubeFeb 20, 2007Rachit ModiRateb NoriTopics we will be covering:A brief history of GoogleA brief history of YouTubeSynergies behind this AcquisitionThe AcquisitionThe Aftermath of the AcquisitionGoogleStarted by Larry Page and Sergie Brin – Ph.D. students from Stanford UniversityThe search engine gathered a large following due to it’s simple, uncluttered and “clean” design – which turned out to be its competitive advantageGoogle was incorporated on September 7, 1998 and went public March 30, 2006Total initial investment raised for Google was $1.1 million – it now has a market cap of $130 billionGoogle’s Dual Class Share StructureClass A Stock:Similar to common stock but with less voting powerClass B Stock:More “ownership” than anything elseHas far greater voting rights than Class A“By their ownership of 86,753,907 shares of Class B common stock, three of the company's executives (Eric E. Schmidt, Larry Page and Sergey Brin) controlled 66.2% of the total voting power of all the company's shares...even though they owned only 31.3% of the total shares outstanding” -ZDNetGoogleLeading search engine with a 54% market share, followed by Yahoo which has only 23%Google monitors the highest internet traffic of any website – it gets the most clicks and searches in a day than any other websiteGoogle.com is considered the most valuable online “real estate”.Google’s RevenueGoogle’s only source of revenue comes from advertising – about $7.14 billion in 2006!The company began selling advertising associated with search keywords – which is based on the number of hits users make upon the ads.Keywords were sold based on a combination of price, bid and clickthroughs, with bidding starting at $0.05 per click.Google VideoGoogle announced Google Video on January 5,2006Google planned on a pay-per-view service for its users to watch copyrighted videos through partnerships with TV companies such as CBS, NBA etc, but that was eventually scrapped and it allowed users to upload their own videos for others to seeYouTubeFounded by Chad Hurley, Steven Chen and Jawed Karim – all former cofounders of Paypal Inc.Website was started in Nov 2005It allowed users to upload their own videos for other to see – the same concept that Google Video was aiming for.YouTubeBy the summer of 2006, YouTube was one of the fastest growing websites, outpacing even behemoths like MySpaceAs of a July 16, 2006 survey, 100 million clips were viewed daily with an additional 65,000 videos uploaded per 24 hoursIt has an average of 20 million visitors clicking onto the website each monthThe site has captured 47%Jof the online video market, compared to Google's 11%Google’s Previous AcquisitionsAll relatively small buyoutsRadio Advertising company, dMarcPyra Labs created BloggerUpstartle created Google Documents and SpreadsheetsJotspot wiki technologyAll of these acquisitions were relatively small, but with Google gaining huge revenues through its advertising, it got access to greater buying power - leading to the MySpace acquisition and now YouTubeSynergies behind this Acquisition:Michael Cahill, managing director of Manhattan-based Chilton Investment Co. said ”…we're moving from e-mail dominated traffic to the MP3 player, and we are going ultimately to video, and that is going to consume massive amounts of bandwidth. With Google's (GOOG) YouTube acquisition... we've witnessed companies positioning themselves for video over Internet"Synergies behind this AcquisitionJosh Bernoff, an analyst with Forrester Research. "I think the combination of the greater potential to make deals and also the greater technical ability to solve copyright problems puts (Google) in a much better position than YouTube is (in) by itself."Synergies Behind the Acquisition:With YouTube in the Top 5 most viewed websites, an acquisition like this would significantly boost Google’s advertising revenues - the “social networking” aspect of YouTube drives this acquisitionSergey Brin, Google's co-founder and president of technology. "Video is a great medium for advertising,"More than half of the online video watching market would be controlled by Google, similar to the internet search traffic that the company holds.The Deal:Google paid $1.65 billion to the YouTube owners217,560 shares, and restricted stock units, options and a warrant exercisable for or convertible into an aggregate of 442,210 shares, of Google's Class A common stockThe stock price was averaged over 30 days. The total amount issued excludes $15 million provided to YouTube between the announcement and the close. 12.5% of the transaction will be held in escrow for a year to cover "indemnification obligations."YouTube was to remain a separate service under its own identity for the near future, though YouTube search results may include Google Video clips, and vice versaThe AftermathHedge Fund StrategiesEric Gettleman, a senior associate at Goldman Sachs Asset ManagementYou would take a long position on Google while taking a short position on the industry the acquiring company is in (online video sharing)Similar to Risk Arbitrage for mergers“Indemnification Obligations”Some analysts/critics say $1.65bn was too much to pay for YouTube especially with the legal issues of copyrighted videos being posted on YouTube“Viacom, the parent company of MTV and Comedy Central, is demanding Google-owned YouTube to remove all of Viacom's videos. "100,000 video clips from Viacom-owned properties including MTV Networks and BET has been asked to be removed." Viacom reportedly claims "1.2 billion video streams" have been generated by YouTube without permission or compensation to the company.” - BusinessWeekCatch-22Do you think it’s alright for Google to share YouTube users’ information with media corporations such as Viacom?A) YesB) NoCatch-22If Google
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