Google surprised the world by announcing on October 9 it would acquire California-based video website YouTube for a stock-for-stock transaction of US$1.6bn. This amount is the highest Google has paid for a nifty website. But what makes this acquisition unique is that this is the highest price ever paid for a user-generated Web 2.0 content site.

YouTube simply adds to the Tribe of Google which boasts of areas as diverse as blogging, personalized search, satellite imagery, image management and cellular phone technology! The price tag of $1.6 billion has raised several eyebrows, and Google's economic wisdom is being challenged. However, what this deal means to web 2.0(a system of collaboration-based web development) has been widely ignored.

YouTube - a true Web 2.0 Company

YouTube, founded in 2005 by Chad Hurley and others, is in the genre of a true Web 2.0 media website consisting entirely of user-generated content. It ranks fourth in the sector after other US-based firms MySpace, Facebook and Wikipedia.

YouTube has played a major role in creating the new "clip culture". It is estimated to serve about a 100 million video clips every day to about 72 million unique visitors!

Under the new deal, YouTube is expected to retain its separate legal entity, with Google continuing to concentrate on its own Google Video website as a separate operation. But the deal with YouTube will increase its reach into the user-generated media content market. In this market, "there is a clear winner in [the] networking and social networking side of video", Google chief executive Eric Schmidt said. UBS analyst Benjamin Schachter commented: "Large advertisers are looking to spend more money with Google. Video is a major focus, and YouTube increases its inventory."

Where is the money?

What exactly is the business model behind the purchase? The official line from Google is that "YouTube acquisition is part of Google's ongoing mission to organize the world's information and make it universally accessible and useful." However, it is premised that Google plans to leverage its "advertiser relationships" - a reference to its strategy of combining Google Adsense for Video with
Google Video.

The basic theme seems to be that YouTube will benefit from Google's ad platform when it comes to monetization. Google search will also "improve the search experience" for YouTube users.

Copyright worries

Copyright concerns are another area which will keep Google and its lawyers really busy. There have been several reports of users viewing illegally copied music videos, films and TV programs via the YouTube network. Critics have even drawn parallels to the now-redundant Napster network, despite having a far better record.

To its credit, YouTube has struck deals with Columbia Broadcasting System (CBS), Sony BMG Music Entertainment and Universal Music Group, in an effort to reduce copyright lawsuits.

What next?

This deal is a great one for YouTube, and hopefully a good strategic move for Google. The web community is anxiously asking the question: who is next? Of course, the Facebook-Yahoo! deal looks more likely to happen now. Let's keep our fingers crossed.