GOOGLE

About google:
Google's innovative search technologies connect millions of people around the world with
information every day. Established in 1998 by Stanford Ph.D. students Larry Page and
Sergey Brin, Google today is a top web property in all major global markets. Google's
targeted advertising program provides businesses of all sizes with reckonable results, while
enhancing the overall web experience for users. Google is headquartered in Silicon Valley
with offices throughout the Americas, Europe and Asia.
List of products and services:
1) Web-based products
a) Search tools
b) Advertising services
c) Communication and publishing tools
d) Development tools
e) Map-related products
f) Statistical tools
2) Operating systems
3) Desktop applications
4) Mobile applications
a) Mobile web applications
b) Mobile standalone applications
5) Hardware
6) Services
7) Others (some products and services which do not fall under any of the above category
like hotspot, jaiku etc.)
Major competitors:
Yahoo! Inc.
MSM
Facebook, Inc.

YOUTUBE
About Youtube:
Founded in February 2005, YouTube is a consumer media company for people to watch and
share original videos worldwide through a Web experience. YouTube allows people to easily
upload and share video clips on www.YouTube.com and across the Internet through
websites, blogs, and e-mail. YouTube currently delivers more than 100 million video views
every day with 65,000 new videos uploaded daily and it has rapidly turned out to be the
leading destination on the Internet for video entertainment.
List of product and services:
1) Video streaming
2) Advertisement
Major competitors:
Clip blast
Hulu
Daily Motion
Live video
THE ACQUISITION:
Google Inc. (NASDAQ: GOOG) announced on October 9, 2006 that it has agreed to acquire
YouTube, the consumer media company for people to watch and share original videos
through a Web experience, for a whopping $1.194 billion in a stock-for-stock transaction.
Subsequent to the acquisition, YouTube will operate independently to safeguard its
successful brand and passionate community. YouTube will continue to preserve its brand, its
new headquarters in San Bruno and all 67 employees, including co-founders Chad Hurley
and Steve Chen. Meanwhile, Google will continue to run a less popular video service on its
own site.

Financial Aspects of Acquisition:
In November 2006, Google acquired all of the voting interests of YouTube, a consumer
media company for people to watch and share original videos through a web experience.
This transaction was accounted for as a business combination. The purchase price was
$1.194 billion and consisted of cash payments of $21.2 million, including a payment made to
a content provider of $15.3 million and direct transaction costs of $4.8 million, the net
issuance of 2,427,708 shares of our Class A common stock and 30,171 fully vested options
to purchase our Class A common shares valued at $1.173 billion. In addition, Google issued
unvested options, restricted stock units and warrants to purchase 1,189,524 shares of Class A
common stock valued at $564.5 million which were later recognized as stock-based
compensation as the awards vest over the related vesting period of 20 to 41 months. These
unvested awards were earned primarily contingent upon each individuals continued
employment with them. Also, under the terms of the agreement, twelve and one-half percent
(12.5%) of the equity issued and issuable were subject to escrow for one year to secure
indemnification claims.

The following table summarizes the allocation of the purchase price for YouTube (in
thousands):

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,134,68
7
Patents and developed technology 24,000
Trade name, customer contracts and other 153,000
Net liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . (45,027)
Deferred tax liabilities (72,240)
Purchased in-process research and development

Total
$1,194,42
0

Goodwill is not deductible for tax purposes. The developed technology, customer
contracts and other intangible assets have a weighted-average useful life of 4.5 years from
the date of acquisition. The amortization of these intangibles was not deductible for tax
purposes.

Supplemental information on an unaudited pro forma basis, as if the YouTube
acquisition were consummated at the beginning of the years 2005 and 2006, is as follows (in
thousands, except per share amounts):


Year Ended
December 31,

2005 2006

(Unaudited)
Revenues $
6,138,57
5 $
10,617,81
0
Net income $
1,194,81
4 $
2,801,94
2
Net income per share of Class A and Class B common stock diluted . . . . . . $ 4.04 $ 8.96

The unaudited pro forma supplemental information is based on estimates and assumption,
which Google believe are reasonable; it is not necessarily indicative of the consolidated
financial position or results of income in future periods or the results that actually would have
been realized had Google been a combined company during 2005 and 2006. The unaudited
pro forma supplemental information includes incremental stock-based compensation and
intangible asset amortization charges as a result of the acquisition, net of the related tax
effects.

Synergies behind this acquisition:
Manhattan-based, Chilton Investment Co. moved from e-mail dominated traffic to the
MP3 player, and they went ultimately to video, and that consumed massive amounts
of bandwidth. With Google's (GOOG)-YouTube acquisition, we witnessed companies
positioning themselves for video over Internet
The combination of the greater potential to make deals and also the greater technical
ability to solve copyright problems put (Google) in a much better position than
YouTube is (in) by itself.
With YouTube in the Top 5 most viewed websites, an acquisition like this
significantly gave a boost to Googles advertising revenues - the social networking
aspect of YouTube drove this acquisition
More than half of the online video watching market went under the control of Google,
similar to the internet search traffic that the company holds.

Benefit of acquisition:
The acquisition combined one of the largest and fastest growing online video entertainment
communities with Googles expertise in organizing information and creating new models for
advertising on the Internet. The combined companies focussed on providing a better, more
comprehensive experience for users interested in uploading, watching and sharing videos,
and offered new opportunities for professional content owners to distribute their work to
reach a vast new audience. Together, they became natural partners to offer a compelling
media entertainment service to users, content owners and advertisers. By joining forces with
Google, You Tube benefitted from its global reach and technology leadership to deliver a
more comprehensive entertainment experience for their users and to create new opportunities
for their partners. Besides it also provided them the flexibility and resources needed to pursue
their goal of building the next-generation platform for serving media worldwide. When the
acquisition became complete, YouTube retained its distinct brand identity, strengthening and
complementing Googles own fast-growing video business. YouTube continued to be based
in San Bruno, CA, and all YouTube employees remained with the company. With Googles
technology, advertiser relationships and global reach, YouTube continues to build on its
success as one of the worlds most popular services for video entertainment.
Google was indirectly benefitted by acquisition of Youtube indirectly in many ways
which are:
i) YouTube gained Google a critical slice of growing online video eyeballs, which will attract
more marketing dollars to the Internet as a whole. This was much more important in
the USA, where the main competitor Hulu is ad-funded than the UK, where the BBCiPlayer
is Taxpayer funded;
ii) YouTube gained from Google even more important meta-data which can be cross-
pollinated with data from other Google services;
iii) YouTube traffic strengthened Google specifically in peering negotiations and overall in
network design;
iv) YouTube is probably a small fraction of Google overall cost base and the spin-off benefits
lower overall unit costs; and
v) YouTube positioned Google very powerfully for a key role as a gatekeeper in the
copyright world.
Googles Share of the Advertising Pie kept on Rising
As well as internet advertising growing faster than overall advertising, Googles share of that
advertising grew as well.

Source: IAB/PWC Data and Google SEC filings
In 2008, the Google share of the overall US Internet Advertising market had reached 45%, up
from 36% in 2006 - pre YouTube acquisition. Again, all of this growth cannot be attributed to
YouTube - either directly or indirectly.
In terms of direct YouTube advertising revenues, Google does not publish a figure. Credit
Suisse in their infamous analyst note estimates YouTube 2008 advertising revenue at only
US$200m (associated with overall losses of US$470m) and the IAB/PWC data estimates
video advertising at only 3% of the overall internet advertising market.
One of the little discussed benefits of Google owning YouTube is that YouTube is more than
a pure video streaming network. It is a social network in its own right. Accounts are needed
to create, comment about and rate content, which is something that is not required for the
core search service. It is hard to envisage that at this stage YouTube is directly monetizing
this meta-data. Undoubtedly, it will be contributing to understanding of user-behaviour and
probably the data is already contributing to the optimization of the Google advertising engine.
Google worldwide revenues leaped up by US$11.2bn to US$21.8bn in the two years since
purchasing YouTube in 2006 for an all-share cost of US$1.8bn. In the same period, operating
cashflow went up by US$4.3bn to US$7.9bn.
The amount of indirect contribution of YouTube to Google revenues is uncertain, but what is
more certain is that Google can afford YouTube.
Marginal Cost = Zero
One of the most important disciplines of internet economics is to keep the marginal costs of
delivering another page or another video stream as close as possible to zero. This doesnt
mean that total costs are zero, but more costs are predictable and not subject to the vagrancies
of any explosive growth in demand.
To be successful on the internet then costs must be either turned into fixed costs or success-
based. With YouTube, key variables are computing and bandwidth costs. Googles tactic
turned the majority of them into capital costs. Google deployed more and more capital
building out infrastructure, whether vast data centres or its own network - effectively kept an
ever increasing proportion of its traffic on the Googlenet.



Caution To Be Taken Care Off:
(1) Changes in economic, business, competitive, technological and/or regulatory factors.
(2) Failure to receive regulatory approval for the acquisition.
(3) Failure to retain the levels of traffic on the YouTube site.
(4) Failure to compete successfully in this highly competitive and rapidly changing
marketplace
(5) Failure to retain key employees.
(6) Other factors affecting the operation of the respective businesses of Google and YouTube.
(7) The failure of YouTube and Google to work together effectively.
IMPACT
In the Google/ Youtube merger the Federal Trade Commission was mute. To a large extent,
the users of YouTube are certainly a subset of Google's users. People who are active on
YouTube may use Google in order to search for other or related information on the internet.
Consequently, Google would address the same users if it could identify them. By the
acquisition of YouTube, Google gained direct access to these users and can perfectly identify
them. The merger eliminated competition for the advertisers who were targeting users of User
Generated Content (UGC).
PRE- Acquisition STATS FOR GOOGLE & YOUTUBE
MARKET SHARE
YOUTUBE: 45.46% GOOGLE: 10.25%

REVENUE STATUS
YOUTUBE: $2,497,036 GOOGLE:$6,138,575

POST- Acquisition STATS FOR GOOGLE
MARKET SHARE (for Videos)
*

64.34%
REVENUE STATUS
$10,617,810




CONCLUSION
The merger between Google/YouTube had beneficial effects for consumers because the
match between consumers and advertising has been enhanced. As the consumers benefit
more from having specific search ads displayed on their websites than having unspecific
advertisement. Since this merger was not challenged by antitrust authorities, no relevant
market was identified, neither with respect to the group of users, nor with respect to the
advertising market.
Assuming that the degree of screening and classifying of the users is subject to Google's
discretion, the merger eliminated one sort of incentives to not use their search technology to
the full extent. After the merger, Google could better identify users of YouTube and match
them with ads specially designed for users of UGC.



REFERENES:
https://www.investor.google.com/proxy.html
http://www.telco2research.com/articles/AN_google-internet-behemoth-youtube_full
http://www.nbcnews.com/id/15196982/ns/business-us_business/t/google-buys-
youtube-billion/
http://finance.yahoo.com/q/is?s=GOOG+Income+Statement&annual
http://www.podcastingnews.com/content/2006/10/google-vs-youtube-traffic/