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Google - Reliance Communications tie-up

Internet major Google is in early stages of negotiations with Reliance Communications to take a part of the Flag Telecom’s trans-Pacific undersea communications cable on a long-term lease.

Google is believed to be in talks to take on lease 500 GB bandwidth and this, according to industry sources, puts the deal size at around $80-100 million (Rs 320-400 crore).

According to sources close to the development, the companies have initiated talks to set up a joint cable under a “cooperative arrangement”.

Under the broad contours of the discussions, Flag Telecom will sell dark fibre to Google. This will help Google save the cost of duplicating a fibre optic network, which would cost around $350-380 million (Rs 1,400-1,500 crore).

With the availability of dark fibre, Google will only need to invest in lighting up the cable, and it would give the company a self-managed, fully secure network.

While for Reliance Communications, with such a pre-sale deal, it would get a reasonable proportion of the capex that would be used for construction of the cable.

When contacted, a Reliance Communications spokesperson declined to comment.

Sources also said Reliance Communications would also look at selling lit-capacity on its global internet protocol networks to Google. Flag has lit-up capacity on its Falcon cable in Wes Asia and other cables on the Mediterranean and East African coasts.

Flag Telecom had recently announced its plan to set up trans-Pacific cable, under its Rs 6,000 crore next- generation network expansion plan. A cable on the trans-Pacific route would cost around Rs 1,400-1,500 crore. ($350-380 million).

Flag has recently awarded construction of its four submarine cables under the Flag NGN plan to Japanese giant Fujitsu.

The move also gains importance as Google was planning to set up its own sub-sea cable across Pacific, under a project called Unity. However, it could not be ascertained whether Google would go ahead with the project or shelve it by leasing a portion of Flag’s trans-Pacific system.

Google, Yahoo may be eyeing Rediff

US-based Internet giants such as Google and Yahoo are eyeing Rediff.com India Ltd, which runs one of India's most popular consumer Internet portals, for a possible acquisition. Investment banking sources told Hindustan Times that the management of Nasdaq-listed Rediff was in talks with the global companies for a negotiated takeover deal.

Rediff, Google and Yahoo officials could not be immediately reached for their comments. Talk of the deal is emerging in the context of a general worldwide rebound in the Internet business, and India emerging as a hot story in the global economy with strong growth in both telephone penetration and the Internet in urban areas.

Leading US-based investment journal Barrons reported this month that Rediff is seeing speculation that it could be a takeover target. Rediff’s stock has witnessed a sharp jump in share price and volume on Nasdaq over the past week, when it also launched a Website to help consumers upload voice, video and photographic content for free.

The company's stock moved up to $25.41 per share on July 13 from $17.94 on July 5 and. The trading volume has increased to more than a million shares from an average of 50,000 share a day. In fact, on July 12, Rediff shares closed at $26.46 and more than 3.3 million shares traded hands. The company has a current market capitalisation of $738 million.

The sources said if the deal comes through, the valuation may be close to a billion US dollars.

The Barrons report quoted Ashish Thadani, an analyst at Gilford Securities, as saying that Rediff could fetch more than $ 25 a share in a sale and could see other suitors besides Yahoo and Google

Other suitors could possibly include AOL (America On Line), a division of Time Warner, which has a strong presence in offshore services from India, but is not a significant player in the market. Microsoft's MSN portal is also keenly stepping up its presence in the Indian market.

Rediff.com India, an online provider of news, information, communication, entertainment and shopping services, reported a net income of $2 million for the fourth quarter or $6.89 per ADS, compared with $0.53 million or $1.96 per ADS in the same quarter of the previous year.

The company's revenues increased 66 per cent to $8.48 million from $5.11 million in the same quarter of last year. India Online revenues, which include advertising and fee-based revenues, jumped 76 per cent to $6.30 million from $3.57 million in the year-ago quarter, while US Publishing revenues were $2.18 million, up 42 per cent from $1.54 million a year earlier.

BW - If Google Shopped Until It Dropped

It was a glorious Thanksgiving for the founders of Google Inc. (GOOG ), whose shares now trade around $500, having more than quintupled in 27 months. Yes, a market value of $155 billion is some kind of cornucopia. So with tryptophan coursing through their veins and visions of search algorithms dancing in their heads, Sergey Brin and Larry Page let their post-meal thoughts drift to what most other Americans were fixating on: shopping.


If they didn't, they should have. The market has handed Google a pile of paper money that may or may not hold its value. Just ask rival Yahoo! Inc. (YHOO ). At its peak, it was worth $150 billion; now it's worth $37 billion and kicking itself for not having spent more of its stash.

Google's surging stock is practically begging to be used for acquisitions. The company trades at 37 times next year's expected earnings per share, more than twice the broader market's price-earnings ratio. Analyst Laura Martin of Soleil-Media Metrics notes that to justify its valuation, Google would have to deliver 25% annual compounded growth over the next decade. Can its killer search engine pull off that kind of streak? It's doubtful. "At some point, they'll have diminishing returns from paid search," says Martin P. Pyykkonen, senior Internet analyst at San Francisco investment bank Global Crown Capital. "There's no question they need to diversify." The $1.6 billion acquisition of Internet upstart YouTube Inc. was a start, but much more can be done.

Portfolio strategists say investors can allocate as much as 5% of their portfolios to purely speculative holdings, also known as mad money. But with the stakes so big, Google would be wise to put aside even more of its paper value--say, 7% or 8%--for investments to add some real diversification. Herewith: a $12 billion holiday shopping list.

It should start with a contrarian media play: the New York Times Co. (NYT ), now worth just $3.5 billion, roughly its 1998 level. The industry has never been so uncertain, and Google has already struck deals with some newspapers to post archived content. Meanwhile, Times management is under fire from a big shareholder, Morgan Stanley (MS ) Investment Management, which is trying to change its governance structure to take some power away from the controlling Sulzberger family. What better time for a white knight to step in?

The asking price, including the assumption of debt and the satiation of the Sulzbergers, might be $6.5 billion. That would land Google the Web site About.com, 155 years of searchable Times archives, and swank new headquarters in Times Square--all for just 1/25 of the Google pie. If it acts now, Maureen Dowd might even emcee its holiday bash.

Next stop: real estate, of which Google has too little. Any self-respecting media giant needs a theme park. For a piddling $2 billion or so, Google could buy Walt Disney's (DIS ) aging Epcot Center in Orlando and rechristen it Google World. The prospect of animatronic Larrys and Sergeys might not get millions of tourists flooding in, but Google could actually use some losses to ease its tax load.

Commodities, baby! Google is light in natural resource holdings. Peruvian copper would kill two birds with one stone by providing emerging markets exposure as well. The problem is that pollution-spewing Peruvian copper mines kill thousands of birds each year. Google's Prius-loving staff won't go for that.

So why not invest in Pacific Ethanol Inc. (PEIX )? It can be had for an easy $1 billion, assuming a more than 20% premium. Besides improving the planet, ethanol would give Google reason to pursue another complementary asset: Ted Turner, America's largest individual landowner, with 2 million acres across seven states. Google's ethanol plants would need vast tracts of land on which to grow corn and switch grass--and Ted's 40,000 head of bison could happily fertilize that acreage. Price tag? Totally affordable.

That leaves emerging markets. How about assuming the balance of Turner's $1 billion philanthropic tab to the U.N.? Don't dawdle, guys. Use it or lose it.

Google and the selling of simplicity - Jonathan Weber

Can Google succeed in the print world the same way it has online?
The incredible success of Google is easy enough to understand - the company built a better mousetrap, and the world beat a path to its door. Its search results are generally much better than that of other search engines, and it has discovered that relevant text ads next to search results are a powerful advertising medium. The relevance of the ads that Google places on other publishers' websites is far higher than that offered by competitors and thus they get more clicks, and the publisher gets more money. I've seen this first-hand on NewWest.Net.

From another standpoint, however, Google's current dominance of the online advertising world looks anomalous. A large and growing chunk of Google's business involves serving as the middleman between advertisers and publishers and that's a position, in the age of the internet, which is supposed to be inherently insecure. That's especially true when the middleman takes a huge cut. Google is so powerful that it doesn't feel the need to tell its customers how much it is taking, but judging by the company's profits it is a lot.

In theory, cutting out this ravenous middleman should be easy. All a publisher need do is look at the ads showing up on Google Adsense, call the advertiser, and offer them the same link for less. The result? Cheaper ads for the advertiser and more profit for the publisher. But this kind of thing doesn't seem to be happening much - at least not yet. Google has made things simple and effective for the advertiser and they like it that way.

Indeed, it has succeeded so well in selling simplicity that the company is now widening its net. It is making a substantial effort to sell advertising in other media including radio, television and newspapers. Google will use its systems to target and auction ad space, and provide advertisers with creative support as well as buying power. It is, in part, a simplification of the services traditionally offered by ad agencies, which small advertisers cannot afford.

Google's initial foray into selling print magazine pages has reportedly been something of a bust but the company seems undeterred. Certainly, the agency system could use some modernising, and there seems to be a market for offering more and better tools to small advertisers. But will Google enjoy the same competitive edge in this business as it does in the world of search? I'm not sure.

Its online advantage is huge. For all the dramatic growth in online advertising and all the talk of millions of new publishers with blogs and podcasts and YouTube videos, a remarkable 75 per cent of all online advertising revenue is flowing to the ten largest ad-supported websites (with Google, of course, at the very top of the list). Either the consolidation of the new media world has already happened and the leaders have built a position of dominance that will last for some time, or we are still at a very early stage and the 'long tail' of smaller, newer internet enterprises is just beginning to wag. I tend to believe the latter.

Google continues to insist that it is not a media company because it does not produce or own content; it is an aggregator that provides services to the media industry. It would stand to reason that content companies, once they stop bemoaning the end of the good old days and begin re-making their businesses in earnest, will be able to develop some of these services themselves. At the very least, any business carrying the kind of gross margins that Google enjoys will attract - indeed is already attracting -a ton of competition. All kinds of intermediaries will be trying to connect advertisers with relevant media and specific types of consumer behavior.

A popular question on the conference circuit these days is whether Google is a friend or a foe of media companies. I think it is neither: it is a vendor, one whose services currently command a large premium because they are superior to those of the competition. Will that last forever? I have my doubts.

Here Come The Bride Sites (Businessweek)

U.S. Net heavies are wedding India's fast-growing matchmaking dot-coms

There's Yahoo! Finance, Yahoo! Autos, and Yahoo! Jobs. So why not Yahoo! Weddings? In India, the Internet giant is playing online cupid to people looking for arranged marriages. In September, Yahoo! Inc. and Silicon Valley venture capital firm Canaan Partners jointly paid $8.5 million for what industry insiders say is roughly 10% of BharatMatrimony.com, a nine-year-old marriage Web site that also has 50 offices across India to serve those without Net access. "BharatMatrimony will help us get a larger share of the Internet market" in India, says Yahoo India Managing Director George Zacharias


One satisfied customer is Pradeep Nair. The 32-year-old packaging material exporter from Mumbai tried finding a bride the traditional way: by hiring a matchmaker. "There was something or the other missing" with each of the 50 or so candidates, he says. Either her horoscope didn't match his own -- a key consideration for conservative Hindus -- or she fell short of his ideal: a tall, attractive working woman. Frustrated, Nair paid $27 to sign up with BharatMatrimony. Three months later, he wed Vrinda, 28, an accountant working for Indian carrier Jet Airways. Nair plans to register his sister on the site next. "It's easy to access, and it throws up good choices," he says.

EASY TO SAY "NO"
Yahoo isn't the only foreign player getting hitched to an Indian marriage site. Microsoft Corp. a year ago hooked up with Shaadi.com, though it didn't invest any money in the site. "Shaadi helps attract huge numbers of users," says MSN India country manager Jaspreet Bindra. Silicon Valley venture capital fund Kleiner Perkins Caufield & Byers has plowed some $4.6 million into Info Edge, which runs matrimonial site Jeevansathi.com. Google Inc. also is said to be prospecting for a partner, though the company declines to comment.

There are plenty of potential mates for overseas Net companies. India has scores of sites dedicated to brokering marriages, while Net dating services are less popular. Some 7.5 million people use the marriage sites, up from 4 million in 2004, the Internet & Mobile Association of India estimates. Since registration is free, and users only pay when they want to contact a potential partner, the sites are likely to take in just $21 million or so this year. But there's plenty of room to grow. Indians lay out nearly $500 million a year for offline marriage services such as matchmaking, the biggest category of print classifieds. "Today the emphasis is on compatibility and being a professional, something the Internet lets you test, as opposed to the traditional contacts," says Anupam Mittal, Shaadi.com's founder.

The popularity of the sites reflects the changing face of India. Traditionally, Indian marriages have been brokered by family, friends, or professional matchmakers, a laborious process that involves matching candidates on the basis of religion, caste, community, and horoscopes. Busy professionals such as Charoo Kher prefer the speed of the Net. A customer-relations manager at India's commodity exchange, Kher, 31, had no time for dating so she registered on Shaadi.com. She and her Punjabi family reviewed 100 or so profiles -- with details such as hobbies, favorite foods, and salary -- and settled on Gurmeet Walia, a 35-year-old caterer. "The ease of finding many profiles online under one roof seemed practical," Kher says. The couple wed eight months ago.

Online matchmaking offers another advantage: In India there's a stigma attached to turning down a marriage proposal. The Internet allows users to disengage easily if they don't, well, click.

No, Time Warner isn't suing Google

The UK's Guardian has an intriguing little story today: Time Warner CEO Dick Parsons (who, one must disclose, signs the Browser's paychecks) is negotiating with YouTube to deal with the problem of videos that infringe his company's copyrights, and now that Google's buying the video-sharing site, Parsons says he's going to move those negotiations to his company's partner, which owns a 5 percent stake in Time Warne's AOL unit. A sensible approach, and smarter than suing, right?

Read more

Time Warner suing Google?

GigaOM has the story

To compete with Google, Yahoo! should buy AOL

AOL has never quite worked as planned for Time Warner, Inc (NYSE: TWX). The merger of the two companies is seen as the cause of the drop in TWX stock to today's $19 -- much improved from earlier this year, but still well below $91, where it traded over six years ago. AOL is taking a large risk by trying to migrate from a subscriber-based revenue model to one driven by ad revenue.

It is hard to say what AOL is worth. One way to look at it: With Time Warner's market cap at $77 billion and AOL representing about 20% of revenue, the company might fetch $15 billion, depending on whether any of Time Warner's debt is involved. Since AOL is in transition, TWX might even sell the company for less.

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Motely Fool - Google finally pigs out

It finally happened. Google (Nasdaq: GOOG) has at last made an earth-shattering acquisition. After more than a few days of speculation, it has agreed to buy popular video-sharing site YouTube in a $1.65 billion deal.

The transaction won't even make a dent in the company's $9.8 billion cash-rich fortress -- YouTube has opted to take Google stock in exchange for the company.

Just before the deal was announced following Monday's market close, I was in the process of asking my fellow Fools what they thought about the proposed pairing. Here's what they had to say just as the news was about to break.

Anders Bylund:

Until Monday morning, I thought the deal stood a snowball's chance in Miami of happening. Google doesn't need to pay $1.6 billion for anything more than a brand name. Google's video service is no worse than YouTube, and the proposed partner comes with a large, dark cloud of copyright trouble hanging over it.

And then I got the press releases. Google signs video-distribution deals with Sony (NYSE: SNE) and Warner Music Group (NYSE: WMG). YouTube signs suspiciously similar deals with Sony and Universal. It got Warner a couple of weeks ago. All of a sudden, it looks like everybody sat down at a table, had some hot chocolate, and worked out their differences. That snowball just moved to Canada.

Tim Beyers:

So, the other day, I'm reading how a company that collects catchy domain names for ad space has attracted $220 million in venture financing inside a year. Now I'm reading that Google might pay $1.6 billion for YouTube. Is it really worth more than three times MySpace? Seriously, since when did we start paying billions for companies that create, in effect, nothing? Oh, that's right, during the last bubble! Pop!

Vitaliy Katsenelson:

YouTube should take the money and run. I love the site -- this weekend, I spent about two hours watching Queen music videos (love that group) -- but I am not sure about the sustainability of its competitive advantage. If it doesn't sell, it may face the fate of Pointcast, which did not want to sell itself on the cheap for $500 million in late '90s and later went bankrupt. That being said, maybe YouTube's competitive advantage is the tremendous library.

Jim Fink:

Mark Cuban says that only a moron would buy YouTube because of the copyright issues. According to Cuban, YouTube is the video version of Napster (Nasdaq: NAPS), and all Google would be buying for $1.6 billion is a bunch of costly lawsuits. I can't believe that Google's management hasn't thought this issue through. Google must be confident that it can strike licensing deals with content providers to avoid litigation hell.

Dayana Yochim:

I'm just trying to imagine the T-shirts: GooTube? YouTooble?

Rich Smith:

It depends on whether Google will be paying with real money or with its own overvalued stock. I'd happily buy out eMeringue.com myself if they'd take Monopoly money in payment.

Steven Mallas:

Google and YouTube. There's no question that this is a huge business event. But will the acquisition actually add value over the long term, once all the hype fades away?

This is a difficult one to assess. The YouTube brand is hot right now -- everyone's talking about it. It's sort of a cross between MySpace and local cable access -- anyone who has a digital camera can make decent-looking creative fribbles on any subject matter. Users can channel and instantly distribute their inner Scorceses. Hey, it's definitely cool, and it's a good example of what a site fueled by user-generated content should be.

But will YouTube always be as hot? I'm not so sure. Remember that any company can replicate the YouTube model. That could hurt brand equity down the line and make the $1.6 billion of capital deployment -- a large number for Google in comparison with its previous acquisitions -- look like too much money spent for something without a well-defined moat. Would a media conglomerate have been a better fit?

As I said, though, this is difficult to assess. I wonder whether it would have been better for Google to have simply worked on its own video brand. At the very least, a cheaper buying price would have been nice. Perhaps the powers that be at the greatest search engine in the world know something about YouTube's future that we can't possibly see. Either way, though, to the other question of whether YouTube should have remained independent -- no way. For the founders of that site, strike while that iron is hot, baby!

Mike Norman:

YouTube may not amount to anything, but even if it doesn't, the money is peanuts for Google.

On the other hand, YouTube may become a huge success, propelling Google far higher than anyone thought and putting even more distance between it and rival Microsoft (Nasdaq: MSFT).

Brian Lawler:

Google's management has shown yet again that a strong scientific background doesn't always translate into sound financial management.

YouTube's format won't be easy to monetize, and now that it is owned by a deep-pocketed corporation, the lawsuits will start to fly from organizations being infringed upon by YouTube.

This is basically Napster part two. The recording studios were able to destroy Napster with their lawsuits. Now with YouTube, the movie and television studios will have no problem not only taking it down but also wounding Google. Bad, bad move.

So now what?
As I had mentioned on Friday, Google wouldn't have bumped Froogle off its landing page to make room for a Video tab if it wasn't serious about competing in the clip-culture revolution. Google wasn't having much of an impact against edgier sites like YouTube and MySpace's own video-streaming initiatives.

When eBay (Nasdaq: EBAY) realized that its fledgling Billpoint financial-payment service would never supplant PayPal as the deal-sealer of choice on its auction site, it swallowed hard and acquired PayPal. When Yahoo! (Nasdaq: YHOO) recognized the value of paid search, it wasted no time in snapping up industry pioneer Overture rather than ramping up its own service.

The stock market is funny that way. It can make a surrender seem like sweet victory. The one with the fattest billfold wins, even if the buyer was getting smoked by its acquisition target. Google is buying YouTube because Google failed at being the online leader in video, yet Google will be hailed as the top dog in digital video streaming by the time the transaction is completed in a month or two.

Quite frankly, you've got to love the pairing of Google with YouTube. I know that many of my bright and esteemed colleagues don't agree, but this was really the best fit for both companies. Watching the way Google took on the book publishers and the government proves that it has no problem with YouTube's potential for copyright litigation. YouTube, meanwhile, is going to the "do no evil" company that's open to letting the video specialist operate as independently as possible.

Will YouTube ever approach the sweet margins that Google has been achieving? Not a chance. The eventual profit -- and Google will turn a profit with this move -- will still be incremental. However, that doesn't bother me. If Google were limited to entering only sectors that would broaden its margins, it would be struck expanding exclusively into computer animation and Chinese gaming. That wouldn't work. Even Microsoft would never have rolled out the Xbox if big margins were the only measure of success.

Google will make this work.

More importantly, it just saved me an embarrassing run to the mall.

"How much do you want to bet that YouTube doesn't make it to next year as an independent entity?" I wrote back in March. "If it does, I'll put on a sundress and upload the video to YouTube."

Thank you Google, for sparing the world -- and my family -- from seeing me in that.

Google Acquiring Youtube ...

Can Google squeeze enough out of Youtube ?

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Offtopic - Zecco offers zero commission trading

Zecco offers zero commission stock trading - just that you have to put up with Google Ads on their site. Interesting

Is Google Going for YouTube?

The search giant is said to have offered $1.6 billion for one of the Web's most popular social networking sites

The blogosphere is abuzz with speculation that Google (GOOG) is bidding $1.6 billion for YouTube. Neither company is discussing possible talks, as is typical with acquisition deals. But it wouldn't be surprising if Google was interested in the user-generated video sharing site. After all, YouTube is one of the Internet's most popular social networking destinations, with roughly 20 million unique visitors a month.

What online player reliant upon advertising wouldn't be interested in that kind of traffic? In fact, rumors also abound that Yahoo! (YHOO), Viacom (VIA), and even Time Warner's (TWX) AOL explored acquiring the startup, though each company declined to comment about possible past negotiations.

What's surprising is that Google, the king of do-it-yourself Web projects, would bid so aggressively to acquire a company without a proven method of making money. YouTube has been vocal about not running ads before its videos. It has been far less clear about how it will monetize its massive audience.

Todd Dagres, a general partner at Boston venture-capital firm Spark Capital, says such a bid would be a bit out of character for Google, but ultimately makes sense. "I'm a little surprised because it goes against their philosophy and personality to pay this much for an acquisition, but I think they view this as an imperative to get into user-generated video," says Dagres.

CORE COMPETITION. There are several reasons Google sees social networking as key to its continued success. For one, user-generated video sites combine two online arenas advertisers aggressively want to enter. The advertising dollars U.S. social networking sites collect is expected to grow from $280 million this year to $1.9 billion in 2010, according to estimates by research firm eMarketer. By 2009, the firm estimates that online video advertising will balloon to $1.5 billion (see BusinessWeek.com, 8/23/06, "Online Video: Tasty Takeover Targets?").

Second, though Google is clearly the dominant search player, it's still facing increased competition for its core search users from Yahoo, Microsoft's MSN (MSFT), and others (see BusinessWeek.com, 10/05/06, "A Gaggle of Google Wannabes"). Social networking sites have the added ability of generating user loyalty and increasing the barriers to switching to other Internet portals or platforms.

Despite controlling more than 51% of the search market, Google could lose some of its search share if it doesn't proactively move into the social media space, says Forrester Research's Josh Bernoff. "Google is at risk right now of someone coming up with a better search utility and luring users away," says Bernoff. "If your friends are all on MySpace, you have to be on MySpace. If your friends are all on YouTube, you have to be on YouTube. These sites have the power of human relationships, which is much more sticky than just having a good utility."

BUY RATHER THAN BUILD? To date, Google's homegrown efforts to enter the social media market have been relatively lackluster. Google's video site, for example, ranks a distant fifth in the online video space—behind Yahoo Video, News Corp.'s (NWS) MySpace, YouTube, and MSN Video, according to an August, 2006, comScore report. YouTube's market share in the video space is four times that of Google's, according to September data from Hitwise.

Paul Keung, an analyst with CIBC World Markets, says Google can't build the kind of brand recognition YouTube has in the video space. "It's hard to replicate the brand and the audience," says Keung, "and YouTube has a great network at this point." Similarly, Forrester's Bernoff says building its own site is more difficult than buying. "They could build it, but it would take a long time and, at the end of it, they would have to start trying to suck the traffic away from YouTube," says Bernoff. "This is a way to gain momentum in a space where momentum is very important."

Furthermore, there is not a very good precedent for big online companies successfully growing their own user-generated content sites from the ground up. Yahoo's social networking sites have been significantly bolstered by recent acquisitions of startups such as del.icio.us and Flickr (see BusinessWeek.com, 10/2/06, "Yahoo's Strategy: Growth by Acquisition").

PAYING A PREMIUM. Perhaps more important, Google doesn't want another online player to grab YouTube. If YouTube added its traffic to Yahoo, for example, Yahoo could not only sell lucrative, targeted ads on YouTube's sites based on its audience numbers, but it could also get that audience's related search traffic. Google has showed willingness in the past to pay a premium for such traffic and the ability to serve ads to it. In August, it paid News Corp. $900 million for access to serve ads to the MySpace crowd (see BusinessWeek.com, 8/08/06, "Google Gets Back into MySpace").

But is YouTube really worth more than $1 billion? CIBC's Keung says that, providing Google continues to attract and target advertisers as it has in the past, $1.6 billion could be a bargain. "I can come up with numbers that make it an awesome deal, but it is all in the execution," says Keung. In an Oct. 6 note to investors, Keung writes that YouTube has the potential to generate $200 million to $300 million in ad revenues in 2007 alone at the going online advertising rates of between $20-$50 for cost-per-thousand impressions. It could make even more if it finds a way to monetize the traffic with new technology, Keung notes.

However, there are problems with YouTube that make it a risky purchase. Chief among these is the copyright issue. Because YouTube does not prescreen the videos uploaded to its site, copyrighted content sits on its pages until it is removed. YouTube has taken the position that, because it removes the content as soon as it is notified, it is operating according to the rules set out by the Digital Millennium Copyright Act. Yet, it was still sued in July for copyright infringement by an independent photographer (see BusinessWeek.com, 7/27/06, "Whose Video Is it Anyway?"). Universal Music Group is also upset about its content being uploaded to YouTube and is weighing whether to file a copyright infringement lawsuit against the company (see BusinessWeek.com, 9/18/06, "Sour Musical Notes on YouTube, MySpace").

COPYRIGHT ISSUES. Google's deep pockets would make lawsuits all the more likely. "YouTube can wait until somebody screams the content is offensive, but Google would have to clean it up a bit and be sure that copyrights are not being violated," says Spark's Dagres. Otherwise, "the damage could be up to a half a million dollars per issue."

In an e-mail to BusinessWeek, billionaire tech wunderkind and Dallas Mavericks owner Mark Cuban wrote that the copyright issues made YouTube an unattractive acquisition. "I don't think an acquisition would be smart until all the copyright issues are decided," wrote Cuban. "It would be reminiscent of BMG buying Napster."

In Napster's case, lawsuits all but crushed the peer-to-peer file-sharing company. However, Google has the money and expertise to ensure the same doesn't happen with YouTube. Jason Schultz, a staff attorney with the Electronic Frontier Foundation, says YouTube is no Napster.

"A lot of people have been trying to compare YouTube to the original Napster. But they are not exactly the same," he says. "The vast majority of content on [the old] Napster was straight-up content from major record labels. What you are seeing with YouTube is that, though originally there was a lot of content taken straight from movies and television, there is still a fair, and increasing, amount of user-generated content on there. YouTube can show that there is a significant percentage of people using it for legitimate purposes," says Schultz.

Google also has the funds and knowledge to remedy YouTube's copyright issues. There is filtering technology out there that can limit the upload of known copyrighted content. Guba, for example, uses such a filter. If the technology is out there, there's little reason why Google's skilled engineers couldn't acquire or build it. Google also has experience defending itself against copyright infringement suits. The company is currently in legal battles over its image search, book search, and policy of caching Web pages, notes Schultz.

YouTube's problems aside, the true question is not whether the site is worth $1.6 billion, but whether it's worth that much to Google. When you're valued at about $128 billion, what's a billion, says Dagres. "The company has Monopoly money."

Via Businessweek