In the autumn of 2006, the hottest property on the internet was run by roughly sixty-five people working above a pizzeria in San Mateo, California. It had launched publicly only eighteen months earlier. It made almost no money. And on October 9, Google agreed to pay $1.65 billion for it — every dollar in Google stock, not a cent in cash. The company was YouTube, and the deal would become one of the smartest acquisitions in the history of technology. At the time, plenty of very smart people were certain it was one of the dumbest.
Nineteen months, sixty-five people
YouTube was born in February 2005 out of a familiar frustration. Its three founders — Chad Hurley, Steve Chen, and Jawed Karim — had all worked at PayPal, and like a whole generation of the “PayPal Mafia,” they went looking for the next problem to solve. The story they later told was that sharing video online was absurdly hard: no easy way to upload a clip, no reliable way to watch one without the right codec and a lot of patience. So they built the missing piece.
The first video went up on April 23, 2005. It was nineteen unremarkable seconds of Karim standing in front of the elephant enclosure at the San Diego Zoo, observing that elephants have “really, really, really long trunks.” It was titled Me at the zoo, and it is still online today. From that flat beginning the site did something few products ever do: it went vertical. Backed by about $11.5 million from Sequoia Capital — whose partner Roelof Botha was, naturally, another PayPal alum — YouTube rode the twin waves of cheap bandwidth and the embeddable player. Anyone could drop a video into a MySpace page or a blog, and suddenly the whole web was a screen.
By the time Google came calling, YouTube was serving more than 100 million video views a day and absorbing roughly 65,000 new uploads every twenty-four hours. It had become a verb. It had also, crucially, become expensive — the bandwidth and storage bills for all that video were enormous, and the revenue to cover them essentially did not exist.
Google already had a video site
Here is the part that gets forgotten: Google was not a spectator to online video. It had launched Google Video in January 2005 — actually a few months before YouTube opened to the public — and had poured real effort into it. Google Video could host clips, sell downloads, and search television transcripts. On paper it had everything: Google’s infrastructure, Google’s search expertise, Google’s money.
What it did not have was YouTube’s culture. Google Video felt like a library; YouTube felt like a party. Users flocked to the scrappy upstart and its comment threads and its endless stream of the strange, the funny, and the homemade. Google’s leadership — Eric Schmidt, Larry Page, and Sergey Brin — watched their own product lose the race to a company a fraction of its size, and drew the conclusion that would define Google’s next decade: when you cannot out-build the thing, buy it. The negotiations moved fast, reportedly hammered out over a single weekend. By November 13, 2006, the acquisition had formally closed.
Rather than fold YouTube into the mothership, Google left it almost entirely alone — same brand, same team, same offices, same irreverent identity. Hurley and Chen filmed a giddy, hand-held thank-you video for their users, joking that “the king of search” and “the king of video” had joined forces. It was awkward and earnest and went, of course, viral.
The moron premium
The applause was far from universal. To skeptics, Google had just paid an absurd sum for a site with no profits and a legal time bomb ticking inside it. Billionaire investor Mark Cuban had said weeks earlier that only a “moron” would buy YouTube, because the site was riddled with copyrighted clips its users had no right to post — and whoever owned YouTube would inherit every one of those lawsuits.
He was not wrong about the lawsuits. In March 2007, Viacom sued Google for $1 billion, alleging that some 160,000 unauthorized clips of its shows had been viewed more than a billion times. The case dragged on for years and became a landmark test of the “safe harbor” provisions of the Digital Millennium Copyright Act — the rule that a platform is not liable for what its users upload, provided it takes infringing material down when notified. Google ultimately prevailed, and the two companies settled in 2014 with no money changing hands.
That legal shield mattered enormously, but the real vindication was economic. Google’s answer to the copyright problem was not just lawyers; it was engineering. The company built Content ID, a fingerprinting system that let rights holders find their material and choose to block it — or, far more often, to leave it up and collect the ad revenue. Copyright liability quietly became a copyright business. YouTube grew into a platform that would eventually generate tens of billions of dollars a year, more than Google paid for it every few weeks. The $1.65 billion that looked reckless in 2006 turned out to be a rounding error against what it bought.
Google had learned that its greatest strengths — infrastructure, search, and a willingness to wait years for a bet to pay off — could be pointed at things it had not invented. It was a lesson the company was about to apply to something far bigger than video: the phone in your pocket. Next time: the operating system Google gave away for free, and the war it started.
Comments
Post a Comment