Google-YouTube Acquisition Case PANGAEA Presents Google-YouTube Acquisition Case Nov 14,2007 Jeffrey Tingzhen Fanxing Emi John Gundeep

YOUTUBE ACQUISITION Total price tag of YouTube Acquisition:$1.65 Billion Google paid for this acquisition with their portfolio stock in a stock-for-stock transaction which had the additional benefit of being tax-free Sequoia Capital initially invested $11.5 million in YouTube $3.5 million in Round 1 financing $8 million in Round 2 financing Sequoia also held a 30% stake in YouTube, thus at the time of acquisition they received 941,027 of Google stock. Monetary Value for Sequoia: In Oct 2006, Google share price was $472.10 $472.10 x 941,027= $444,258,846.70 This represents a 41x return In Nov 2007, most recent Google share price is $632.07 $632.07 x 941,027= $594, 794, 935.89 This represents a 52x return Sources http://news.cnet.co.uk/software/0,39029694,49284224,00.htm http://mashable.com/2006/10/09/confirmed-google-buys-youtube/ http://www.marketwatch.com/news/story/youtube-acquisition-making-millionaires-outside/story.aspx?guid=%7BB2BA449E-0571-4E7F-B61C-8D427F1C718F%7D

integration PLANS – YouTube & GOOGLE “Following the acquisition, YouTube will operate independently to preserve its successful brand and passionate community.” - Google press release1 Reap the benefits of a growing YouTube user base From 100 million to 200 million views/day in 8 months2 Provides a business model to monetize YouTube quicker and better than anyone else Improve the search experience for YouTube users3 Coincides with Google’s mission to “organize the world’s information and make it universally accessible and useful.”4 “Together, we are natural partners to offer a compelling media entertainment service to users, content owners and advertisers” - Eric Schmidt, Google CEO1 Leverage its advertiser relationships Overlays Google could potentially taint the image of YouTube due to its criticism of having product ADD, as mentioned in the Google Advertising case study. The case study mentions that none of the products were leaders in their categories, drawing only 10% of its search users to the other applications. By keeping YouTube independent, there wasn’t a company culture change that could provoke what synergies existed amongst the workforce. An analysis found on PVR Wire (http://www.pvrwire.com/2006/10/10/google-youtube/) mentions that by October of 2006 YouTube was a top 10 site, had 20 million regular users, and 100 million video views a day. By June of this year, more than 200 million videos were being streamed a day (http://www.usatoday.com/tech/products/2007-06-19-516794712_x.htm). YouTube’s greater popularity than Google in places like Asia further extends Google’s reach (http://www.timesargus.com/apps/pbcs.dll/article?AID=/20061010/NEWS/610100335/1002/NEWS01). With Google being the third busiest site on the web and its acquisition of YouTube, it most likely has the largest user base out there (PVR), of which Google can reap the benefits through monetization of YouTube. The acquisition of YouTube coincides with Google’s mission because Google can enhance user experience by making it easier to maneuver though media entertainment. As also mentioned in the press release, Google and YouTube’s are fit for collaboration to maximize the utility of users, content owner, and advertisers because they put their users first. In order to create this compelling media entertainment service, Google will leverage its advertiser relationships by combining Google Adsense for video in YouTube streams (mashable’s author presupposed this), which resulted in the now present overlays. Overlays are translucent ads appearing about 15 seconds into the video on the bottom 20% of the screen (http://searchengineland.com/070821-203841.php). The user has the option to close this window or click it, only after which the advertiser is charged. These overlays have been proven in tests by YouTube to be more effective than the traditional banner ads, being clicked on 5-10 times more frequently (http://nytimes.com/2007/08/22/technology/22google.html?ref=business). Sources: 1 http://www.google.com/press/pressrel/google_youtube.html 2 http://www.pvrwire.com/2006/10/10/google-youtube/ and http://www.usatoday.com/tech/products/2007-06-19-516794712_x.htm 3 http://mashable.com/2006/10/09/confirmed-google-buys-youtube/

Short Term Objectives: Competition If Google would not have acquired YouTube, it was likely that Microsoft or Yahoo! would have bought it to compete against Google in the web space. Introduction of Google advertisements to Video advertisements According to eMarketer, the video market is worth $775 million in 2007 and has been projected to be $4.3 billion by 2011. By buying YouTube, Google intended to enter the video advertisements market Licensing Content to television Long Term Objectives: Google’s ongoing mission to organize the world’s information and make it universally accessible and useful Increased User Base You Tube has 20 million regular users and 100 million video views per day. It is Top 10 website on the net. By acquiring YouTube, Google would be able to increase their user base. “To put video at the heart of a user’s online experience”, Eric Schmidt, CEO of Google – Focus on the user and all else will follow Sources: Competition: http://www.news.com/8301-10784_3-6106405-7.html Video Ad Market: http://www.mercurynews.com/business/ci_6686088?nclick_check=1 Licensing Content: http://www.nytimes.com/2007/08/22/technology/22google.html?ref=business Google’s Mission and Focus on User – Google Inc. Case study Increased User Base: http://www.pvrwire.com/2006/10/10/google-youtube/

Benefits of Acquisition for both parties Google to YouTube YouTube to Google Reputation Censorship: Google could effectively channel its vision and expertise on "managing" freedom of speech towards YouTube allowing YouTube to manage its video library more responsibly. N/A Resources Advertisement platform: YouTube is able to use advertisement platform from Google. Video Content: Around 100 million videos are available on YouTube on a given day, with 65,000 new videos added every day. Legal protection Copyright issue: Google has strong legal team to fight legal battle for Youtube. Business development Profitable revenue model: Google is able to make YouTube grow faster and profitable 1.Video adverts in YouTube videos 2. Selling premium video 3. Licensing content User base Youtube has large and increasing user base. The average visitor spends 28 minutes on YouTube.

Criticisms OF YouTube BEFORE Acquisition Business Concerns At the time of acquisition, YouTube had been criticized for not being profitable, due to high server costs and lack of a sufficient revenue source1 Legal Issues Because users can upload copyrighted material for public viewing, many thought that YouTube would inevitably be sued for copyright infringements2 Ethical Issues YouTube is in the difficult position of having to regulate content, and has been criticized for their censorship of certain materials over others3 Sources: 1 http://www.pvrwire.com/2006/10/10/google-youtube/ 2 http://www.blogmaverick.com/2006/09/17/the-coming-dramatic-decline-of-youtube/ 3 http://www.nytimes.com/2006/10/09/technology/09link.html?

Reality Test Risk Mitigation Severity/Prob. Misalignment of decision making for YouTube’s business between the Google Trio, and YouTube founders. Google allowed YouTube to operate independently, with little interference in its operation process. High/Medium Merging might cause current YouTube employees to leave the company. Google allowed YouTube to maintain its own culture and working environment High/Low Merging might dilute YouTube’s brand image, and negatively affect its traffic. YouTube would retain its distinct brand identity, strengthening and complementing Google's own fast-growing video business Medium/Low Introducing Ads to YouTube videos could potentially affect user’s viewing experience, leading to discontent in the YouTube Community. ---