I tube, Me tube, We all scream for YouTube!: How does YouTube make money and what's the point of Google's acquisition??

In early October 2006, Google acquired YouTube for $1.65 BILLION DOLLARS!!! This is the largest acquisition of Google to date. My question is a simple one: WHY??? What is Google's interest in YouTube? How does it plan to make all that money back from YouTube? What's YouTube's business plan? How the hell does YouTube make money?? If you've ever been on the site (that is a stupid clause as anyone who has lasted 10 seconds on the internet world would know about YouTube), you would know that it is a website where you have your own profile and you are able to upload videos for your friends, relatives and random public to watch. That is pretty much it! That is the magic of YouTube. Over the past couple of years, it has gotten really popular. People are addicted to it and it gets millions of hits a day. There is a lot of bandwidth required for videos which cost millions of dollars. So the question is: How does YouTube do it?

There isn't a doubt that YouTube was started as a hobby with no interest in the money it could yield. It was created by Chad Hurley, Steve Chen and Jawed Karim who all met through their employment at paypal. Story has it that YouTube was formed one night when they became frustrated with trying to email each other video clips. So here is a problem that they personally faced and wanted a solution. And thus, they created a program (similar to a basic RSS feed) where you can upload videos and view them instantly. YouTube was launched on February 14, 2005 and it was an instant hit. The use base started exploding and there was an increasing need for a bigger server and more bandwidth. After securing some funding, they were able to provide all the new features and add-ons to the site that would eventually hook the people onto the site.

In October 2006, a little more than a year after its launch, it was sold to Google for 1.65 billion dollars! Ever since, YouTube has become an example in the world of business. All I hear about these days is "How do we become the next YouTube?", "How did YouTube do it?" "YouTube? what is that?!" (hahaha.. just kidding, I haven't met a single person who has not heard of YouTube).

So the point is this: YouTube has nothing special that a lot of similar sites don't have. It was simply well timed and they had a lot of luck. Their presentation (i.e. the site) was deemed to be the most user friendly, and thus the most popular. They did not create it to make money, sell out to Google, or even to gain popularity. They simply had a problem in their hands and they found a solution for it. To create a successful business ("The Next YouTube"), one should focus on the problem and solve it in a way that they would like it to be solved. The rest should be left to fate (just like many things in life).

So what's Google's interest in YouTube? It is simply to gain media attention and expand their hold on the internet. With this acquisition, Google pretty much has control on every internet application that exists. Their image is based on simplistic applications that are informative and popular and YouTube fits the bill. Sure, they are making some money from their AdSense program, but is it really enough to even make up the $ 1.65 billion? frankly, No.

Is this a bad decision on Google's part? absolutely not! This was merely a bidding war to prove their dominance on the web. As publicly known, yahoo was also competing for the acquisition of YouTube. By paying such a HUGE price for this site, Google has proved its dominance and has created a brand for itself. This brand puts them on the top of the web ladder, which will help them make money from other applications. Furthermore, YouTube is one of the most popular sites on the web. You can virtually get every video ever made within seconds (I will not go into the copyright issues and the law suits). It has become the entertainment central and has the potential of replacing the television!

One may argue that it is not the current position of YouTube that attracted Google, it is the future potential. It can be implemented in cell phones and other mobile devices which will give you access to any video you want at your fingertips. It is already being implemented in various websites where YouTube videos are one of the features of the site. The possibilities are endless... Google has recognized them and has made a great move with the acquisition.

The real winners here are the three lucky founders of YouTube. Within a year, they have made enough money to buy their own island and start a country of their own! I do not think that even with all this money, they would not be able to reproduce the success they had with YouTube. In contrast, if they hadn't sold their site at the right time, they would not be able to go anywhere with the site and its popularity would slowly disintegrate. Google, on the other hand, has the resources, credibility and the reputation to take this concept to new horizons that man could only dream of! Isn't it funny how the world works? This acquisition and the precise timing of it affects all of us in ways we would never imagine...

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