There has been some idle talk about whether Google’s $1.65-billion stock-for-stock acquisition of YouTube is a harbinger of another bubble market to rival the M&A excesses of the late 90s and at least part of year 2000.
Please allow me to set the record straight be stating unequivocally that we are not about to experience another bubble. That was then, this is now, and much has changed between then and now.
For one thing, the technology market, not to mention most of its denizens, has matured. We’ve moved into an era of greater consolidation, increasing commoditization, and fewer niches for enterprising startup companies to exploit. Many, though by no means all, of the technology industry’s big questions and most daunting problems have been solved and satisfactorily addressed, respectively.
Yes, other successful technology startups will be launched toward greatness and rich exits, just as YouTube met with enormous success on its way to yesterday’s announced acquistion by Google. There will be fewer of them, though, and the losers will vastly outnumber the winners, especially if the beleaguered world of venture capitalism doesn’t adapt to changing market dynamics and evolving business models.
An article in today’s New York Times was poorly headlined by the newspaper’s editors, and perhaps that mislabeled piece engendered some of today’s blather about another bubble. The article actually was a decent investigation of what made the Google acquisition of YouTube come together and why, for all the questions about valuation and content-related copyright, the deal made sense.
At the end of the day, Google’s acquistion of YouTube was pursued because the former saw how it could leverage the YouTube video portal for an immense new stream of advertising revenue.
It would not have made as much sense for YouTube to be sold to other players, with the potential exception of Yahoo, another company that could have generated plenty of advertising revenue on YouTube’s video clips.
As for Microsoft, I firmly believe it was a wise move for the Redmond powerhouse to steer clear of YouTube. With the possible exception of the Xbox game-console brand, Microsoft’s consumer prospects are waning, and it has begun to see its future more in consolidating various enterprise markets than in batting in the consumer space against the likes of Google, Yahoo, and News Corp.s MySpace-based franchise.
This is not something that most at Microsoft will admit, and many at Microsoft have yet to recognize it, but it is happening nonetheless. Just look at the progress Microsoft is making in the SME market and then look at the struggles it has endured with MSN and Windows Live.
To take this discussion full circle, let me close by reiterating that there were good reasons for Google, a company with an immense war chest, to buy YouTube. It was not a bubble-headed move. One might quibble about the valuation and wonder about the remaining copyright issues that must be addressed, but this deal deserves better than being compared with the hope-and-pray merger mania that afflicted the technology markets back in the late 90s.