You think Google
CNET News, a tech publication owned by CBS
The video-sharing site was worth no more than $700 million when Google launched its $1.65 billion offer, by Schmidt's own estimate. But YouTube was -- and still is -- a fast-growing phenomenon that draws millions of eyeballs every day, and the unrealized potential to make money and control online traffic patterns was worth an extra $1 billion.
Schmidt explained that extraordinary circumstances demanded extraordinary measures. "In the deal dynamics, the price is not set by my judgment or by financial model or discounted cash flow," he said. "It's set by what people are willing to pay. And we ultimately concluded that $1.65 billion included a premium for moving quickly and making sure that we could participate in the user success in YouTube."
In other words, that extra billion kept YouTube out of the hands of Yahoo!
Some might say that Google has yet to figure out how to make money from this expensive acquisition, but I respectfully disagree for a number of reasons. YouTube was a smart buy for Google -- if you take a suitably long view of the investment.
Which side do you take, dear Fool? Share your views in the comments below.
Google is a Motley Fool Rule Breakers selection. Walt Disney is a Motley Fool Stock Advisor pick. Walt Disney and Microsoft are Motley Fool Inside Value recommendations. Try any of our Foolish newsletters today, free for 30 days.
Fool contributor Anders Bylund owns shares in Google and Disney, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.