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Science/Tech See other Science/Tech Articles Title: HAS YOUTUBE SOLD IT'S SOUL TO GOOGLE? HAS YOUTUBE SOLD IT'S SOUL TO GOOGLE? Is this the boomtime deal that signals a bust? A Message From Chad and Steve Google has paid $1.65bn for video site YouTube Some think it will come to regret it Young, suitless executives with a start-up company born in pokey offices encrusted with pizza boxes suddenly finding themselves flush with hundreds of millions of dollars. A business with little or no revenues attracts a nosebleed valuation just a few years after launching. Surely these are signs that the technology world, ever keen on a fad, is blowing up another bubble to challenge the dotcom madness of 2000. If the decision of Time Warner, stalwart of the traditional media world, to buy upstart internet player AOL in 1999 marked the height of the last boom, does the move by Google to spend $1.65bn (£880m) on YouTube represent the peak of a new mountain of hype? Or is it a defensive move: a company protecting its territory? For their part, Google executives painted the all-share deal on Monday night as the next step in the evolution of the internet. Wall Street seems happy about the move, with Google's shares registering healthy gains yesterday. But industry watchers are not so sure. "It does feel a lot like 1999 when you see these kinds of values put on companies," says Danny Sullivan, editor of Search Engine Watch. "I think it's very fair to say that this is a 1998-99-style landgrab, but it's impossible to say whether Google overpaid." Maziar Darvish, chairman of Internet Business Group, has experience of the effects of dotcom overexuberance, having taken on internet news site Netimperative in the wake of the last crash. He agrees with Sullivan. "To a certain extent it is a sort of dotcom-style move from a few years back by Google because it is blatantly a landgrab move that they have made rather than a deal purely done on commercial grounds." The land Google is grabbing is in the very fashionable region of social networking and user-generated content, both examples of a new batch of web applications that have been lumped under the term "Web 2.0", to signal their importance as the next wave. "The first wave of the internet, Web 1.0 if you will, was just about getting online and being able to buy stuff and see stuff," says Julie Meyer, chief executive of Ariadne Capital. "This time it's much more about the user being in control and that feels much more powerful to me." No stranger to hype, having been crowned the UK's dotcom queen after her involvement in the First Tuesday meetings that brought the digerati together last time around, she says: "I feel like I was in the heart of things before and this [Web 2.0] feels like it has a much broader, deeper base of people involved, people who are not necessarily technology experts." News Corp's swoop on MySpace last year, Yahoo's acquisition of photo sharing site Flickr and its ongoing takeover talks with college site Facebook are all examples of activity in this more personalised digital space. Chris Coffman, senior analyst at Informa Telecoms & Media, says: "The important thing to put into perspective is that this kind of merger and acquisition activity is not happening across the wider technology sector" - as it did in the last boom. "You could call what is going on with the Web 2.0 companies a 'bubble-ette'. The amount of money that we are actually talking about is not nearly as large as it was before." The reason Google wants to grab the land on which YouTube rests is its high population. Google launched its own online video service before YouTube got off the ground, but YouTube quickly outpaced it and has grown into one of the world's largest online properties. "It's worth more to Google than to most people," reckons Esther Dyson, one of America's leading digital thinkers and one of the first to spot the rise of social networks and user-generated content. She has a very small stake in YouTube. "There's an awful lot going on in Silicon Valley, a lot of money chasing numbers eight to 10 in the market, but you're better off spending your money buying number one." Google wants that pole position because it believes it can make money from the site's traffic using the advertising operation that has made its search engine a cash-generating monster. YouTube also takes Google into a new area, one which is characterised by another internet buzzword - "stickiness". Search engines are all about sending users elsewhere. But services such as email, which Google already provides, social networking and video sharing are all about customers coming back. "If something comes along which offers a better search experience, people can switch at once," says John Delaney, principal analyst at industry experts Ovum. "There's no stickiness to search. The reason YouTube works better is because it has a community element which makes it harder for people as individuals to find the same thing elsewhere." But some elements in that community already seem deeply unimpressed with YouTube's decision to become part of Google. Silicon Valley's golden boys may yet come to rue this deal. Jerks and giggles Free speech has its drawbacks, as YouTube founders Chad Hurley and Steve Chen discovered when they explained their decision to sell up to a billion-dollar corporation. Their quirky video interview, posted on the website's front page, keeps with the site's tradition: it is jerky, amateurish and ends abruptly with the pair descending into incoherent giggles. It has not been well received by YouTube followers. "We're going to stay committed to developing the best service for you, you know, developing the most, you know, innovative service and, er, tools and technology, so you can keep on having fun," explains Hurley, speaking outside a California building. In a sudden flash of enthusiasm, he adds: "This is great - two kings have got together," causing his business partner to explode with mirth. By yesterday afternoon, more than 2,400 people had posted a response. Some congratulated the pair on their new-found millions. Many offered dire predictions of the end of YouTube as we know it. "Sold your souls to Google, eh? Well, enjoy your new fortune while the rest of us scrape by after funding your success," grumps Aston14. USA1Mac advises: "Take the money and run like heck! You've made a bundle of money off other people's work and copyrighted material. Move to another country so you can keep your money safe from the lawyers that will be coming after you." Richard Wray & Bobbie Johnson/Guardian Technology posted Wednesday, 11 October 2006
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