Michi Knows

So it’s entirely possible this whole Google-YouTube ordeal is a classic case of an echo-chamber. Since its initial appearance in the media, the deal went from being in a “sensitive stage” to a confirmed sale. Who knows what’s really going on here. This could be a classic case of circular citing gone awry, but, personally, I really think this rumor has substance.

I didn’t touch on this point on my last post too much, but $1.6 billion is a steal for YouTube. First, imagine if MSN were to lock in a deal with Youtube for advertising. Not only would that help one of Google’s most feared rivals, but the opportunity costs are through the roof. Seeing as YouTube has an immense amount of traffic, an exclusive advertising deal could easily cost upwards of half a billion dollars. And that’s what a company would PAY just to show ads — the actual revenue generated is far greater. Additionally, if the next big medium for advertising on the web is through video, having a 60% market cap on net videos (Google has 10% now) would be a huge advantage.

There’s been rumors that the price is 2.1 billion. Imagine if an exclusive deal with YouTube was worth half a billion. And then the deal itself generated another 1 billion in revenue over the next three years (using the MySpace deal numbers here). It’s still a considerable bargain if it means shutting out Yahoo and Microsoft from becoming the Internet’s most notorious content provider (after MySpace, of course).

Is the “rumor” real? Who knows. But I think this is one deal Google shouldn’t pass up. They have 10 billion in cash and nothing to spend it on. They might as well become number 1 in another segment besides search.