Billionaire investor Mark Cuban famously said in October 2006 that anyone who bought YouTube was a “moron.” Cuban held the company in low regard. “There is a reason they haven’t yet gone public, they haven’t sold,” he remarked. “It’s because they are going to be toasted.” Cuban firmly believed the firm would be sued into oblivion, as it was known for playing host to copyrighted material.
That’s partly why when Google bought YouTube in 2006 for $1.65 billion the deal was such a shocker. The sticker price was generally referred to as “crazy.” Google may have overpaid for YouTube at the time, but some consider it to be the best tech deal ever. Here’s why it was important for Google.
Video was about to be king on the web
YouTube was launched in February 2005 by Steve Chen, Chad Hurley, and Jawed Karim. Vimeo actually beat YouTube to the punch, but it wasn’t well funded. YouTube was supported by Silicon Valley venture capital. Google Videos was actually a thing, too, but not a real ongoing concern as far as video destinations on the web went at the time.
YouTube’s launch coincided with the famous Saturday Night Live “Lazy Sunday” skit, which helped bolster the video-sharing site’s visibility with the web-viewing public. After that, it was off to the races. By July 2006, people were uploading 65,000 videos per day and video views reached 100 million per day. In 2011, those numbers reached 48 hours of content being uploaded each minute and three billion views per day. Today, the numbers are staggering. YouTube has 500 hours of content uploaded each minute and counts 2.3 billion monthly visitors. It’s a behemoth on the web. In fact, it’s the second-most-visited website online after Google itself.
YouTube has 500 hours of content uploaded each minute.
User-generated content is central to YouTube’s success. Anyone and everyone can post videos to YouTube. (Check out Android Authority’s YouTube channel!) Google, an ad-selling company, knew that it could monetize YouTube videos. It later chose to share that revenue with content creators, which in turn led to higher-quality content. It also led to the creation of YouTube superstars. Creators such as PewDiePie, Little Nastya, and Dude Perfect amassed tens of millions of subscribers and generated tens of millions of dollars in revenue and earnings.
The numbers game
YouTube’s own revenue climbed quickly. Google bought YouTube in 2006 for $1.65 billion. It hit $800 million in revenue in 2010 and rose to $19.8 billion in revenue by 2020, representing about 10% of Google parent company Alphabet’s total revenue of $182 billion for that year. What’s unclear is how much profit YouTube generates.
Google has not shared details on the costs to run YouTube, which are surely massive. Consider the storage requirements alone. The number of servers needed to host all those videos must create quite a drain on Alphabet’s finances. Then there’s all the cash that Google shares with top creators, many of whom are multi-millionaires.
More reading: How to set up a YouTube channel — a step-by-step guide
Google hasn’t always been so lucky. Google famously paid $12.5 billion for Motorola Mobility back in 2012. It later sold the company to Lenovo for $2.91 billion, marking a massive $9.6 billion loss. Google also paid $1.1 billion for certain assets of smartphone maker HTC back in 2017 to boost its own Pixel smartphone business. It’s unclear what return on investment Google has received from that particular purchase. Other $1 billion-plus Google acquisitions include DoubleClick for $3.2 billion in 2007, Waze for $1 billion in 2013, Nest Labs for $3.2 billion in 2014, Looker for $2.6 billion in 2019, and Fitbit for $2.1 billion in 2021. Google integrated these acquisitions into its existing product families and unfortunately, the company doesn’t provide a detailed breakdown of its individual business units’ performance in quarterly earning statements.
Dolla dolla bills, y’all
What we do know is that the Baby Shark Dance is the most viewed video on YouTube as of March 2021, with 8.5 billion views. That’s a lot of opportunities for Google to place ads and make money.
YouTube could be worth as much as $300 billion were it to be spun out as an independent company. That’s about 18% of Alphabet’s current net market capitalization of $1.67 trillion. Looking at it from that perspective, that original $1.65 billion acquisition cost was a steal.