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Google’s smart to buy the best: another angle on the YouTube deal


I was chatting with a longtime tech industry analyst and investor last night, and picked his brain about Google/YouTube. I told him my thoughts about the purchase being a price on Google Video’s failure, and raised the question of what it says about the search giant’s future.

The analyst/investor didn’t want to be quoted, but provided an interesting counterpoint: What this says about Google is that it’s humble enough to buy the best.

Contrast that with Microsoft, he said, which has tended to have the attitude that it can snap up the number two or number three company in the market and do just fine. (In the Web conferencing space Microsoft bought Placeware rather than WebEx, and in the virtualization space Microsoft bought Connectix rather than VMware.)

The leader in a space, he said, often has that special something – smarts, vision, verve – that just isn’t so substitutable. When you buy the best, you buy that vision, and it has the potential to propel you forward at a faster rate. (He added that Google has the legal heft to deal with copyright issues, and might have figured that if someone has to fight such battles and win the online video market, it might as well be Google.)

“The most compelling part of this is being able to really concentrate on features and functionality,” said YouTube co-founder Steve Chen in a YouTube video he and Chad Hurley posted after the deal was announced. One can assume the unspoken subtext here is that they don’t have to focus on legal issues, funding, recruiting and bandwidth costs.

So, it’s possible that what this really says is that Google has wisely avoided falling victim to the “not invented here” mindset that can keep big companies from acquiring industry leaders.

As I’ve mulled that over, it also occurs to me that Google might have learned from its MySpace mistake that it’s best to buy a YouTube when you have the chance (and while your stock has a P/E multiple of 62.9). Remember, Rupert Murdoch said Google could have bought MySpace for half the price he paid.

Perhaps Google executives asked themselves, what if Yahoo buys YouTube, like News Corp. bought MySpace? Why would we let that happen?