Big money again chasing young Web upstarts YouTube deal was third blockbuster in the last year
Oct. 16, 2006. 01:00 AM
WASHINGTON—Haven't we seen this movie before?
Cash-rich company offers more than $1 billion for a Silicon Valley Internet company with no profit started by 20-somethings backed by a blue-chip venture firm. The deal is blessed by any number of industry analysts, while competitors scramble to strike similar deals lest they get left in the dust.
It's the Internet Bubble 2.0.
It began modestly last year with eBay's purchase of Skype, the Internet phone pioneer, for $2.6 billion (U.S.). It gained speed with Rupert Murdoch's purchase of MySpace, a social networking site, for $580 million. And it shifted into high gear last week with Google's $1.65 billion purchase of YouTube, a video-sharing site that shows more than 100 million video clips each day.
No sooner had Google's latest purchase been announced than Yahoo stepped up its campaign to snag Facebook, the networking site favoured by college and high school students, whose 22-year-old founder has reportedly turned up his nose at a previous billion-dollar offer.
While the feverish hype has not reached the pitch of the Internet craze of the late 1990s, the similarities are striking — in particular, the logic used to justify purchase prices on the basis of page views and synergy rather than the more traditional metrics of sales and profit.
For YouTube's three youthful founders, Chad Hurley, Steven Chen and Jawed Karim, the Google deal represented the second big payday of their short but brilliant careers.
The initial seed money had actually come from the money they made when another start-up they were involved with, PayPal, was sold to eBay in 2002 for $1.5 billion.
At the time, some thought that price was also rich. But no longer: PayPal, which allows people to make payments by email, now represents more than a third of eBay's sales.
The deal making has fuelled the recent rally on Wall Street, where the tech-heavy Nasdaq was up 2.5 per cent for the week and nearly 15 per cent over just the last two months.
Can you spell "irrational exuberance''?