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Well Google certainly think so and they don’t often get the big decisions wrong.  So what makes a site be worth such an obscene amount of money?

Traffic.

And lot’s of it.  Google already have their own video upload site (Google Video) but as with everything, people like the first video upload site, the original and perceived best, YouTube.  Google, even with their marketing power didn’t manage to scratch the surface and only managed to pull in a fraction of the traffic YouTube had.

This left the owners of YouTube in a very strong position, who else can say they battled Google toe to toe and won hands down?  What makes this even more amazing is the fact the brains behind this were just 2 young guys - what’s even more amazing is that they held out for such a high price, I can guarantee the final selling price was a long way away from the original offer.

But as I was saying, Google had tried and failed and maybe, just maybe, instead of trying to rip YouTube off and build their own copycat site they could have saved themselves a lot of money.  Imagine the scene a year ago - You’ve just set up YouTube and you get a call from Google;

Google: “Hey, this is Mr xxx, I’m calling on behalf of Google.com, we are interested in buying your website for $100 million”
YouTube: “No thanks, we want more than that”
Google: “$100million is our final offer, if you don’t accept we’ll build our own video upload site and you’ll get nothing.”
YouTube: “oh poo”

(The shortened version and doesn’t cast Google in a particularly good light but they’re the big guy in a one sided fight so they’ve got to be the villain of the piece.)

Now, if that conversation had taken place I can’t see 2 young guys turning the offer down and risking being multi millionaires and taking on Google.  If they did, then wow, what a gamble and what a result.

Chances are that conversation didn’t take place and Google were left in a very undesirable position of trying to buy a company they had tried to rip off less than a year previous - that just added a few extra $100 million and both sides knew it.

But how will Google ever make $1.6 Billion from a site that has made a modest income so far for 2 guys?  Now its overheads have gone through the roof and no doubt there will be further investment in the site.

The answer is fairly simple when you look at the following example:

MySpace.

Newscorp brought Myspace for around $400 million, no doubt Google were in there with bids too but felt the prize was too steep.  6 months later how much did Google pay Newscorp to advertise Google Adwords on Myspace?
$900 million.

A hefty more than double the price and they only have partial rights opposed to 100% ownership.  Times have changed and Google have learnt their lesson.  So that’s why YouTube is worth $1.6 billion - Google have made 2 big mistakes over the last year:

1. Not buying out YouTube a year ago instead of setting up a copycat site.
2. Not buying MySpace when it was up for sale.

Both of these have resulted in huge gains for the 2 young guys at YouTube, and you can’t do anything but think (yet again), ‘I wish I’d have thought of that!’.

Not to be overlooked is the Copyright issue of course.  YouTube has loads of videos on its site that violate just about every copyright law known to man.  But knowing Google I’m sure they haven’t spent the equivalent of a small countries economy without thinking that one through.

All this does raise one big question however;

Are we heading towards another dot com bubble bursting?  With the value of popular websites now breaching the billion dollar mark purely on traffic and not any tangible stock or products, can the industry maintain the steep inflation we are seeing?  There has to be a ceiling point eventually, or are we just a year or two away from the new ‘big thing’ breaking the $100 billion barrier?  We’ll have to wait and see.