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Internet search behemoth Google Inc. said yesterday it would buy online video leader YouTube Inc. for $1.65 billion, vaulting the Mountain View, Calif., company to the forefront of the online video craze.
The much-anticipated deal, announced after the markets closed, confirmed press reports last week that Google, jockeying for a bigger slice of the online video business, was set on buying the 19-month-old YouTube.
"This is the next step in the evolution of the Internet," Eric Schmidt, chief executive officer of Google, told analysts and reporters on a conference call yesterday.
Mr. Schmidt and YouTube executives touted the potential of Google's search technology and advertising model combined with the loyal online community of YouTube, which receives 100 million video views per day.
"Right now, we're in the middle of a shift in digital media entertainment," said Chad Hurley, chief executive officer and co-founder of YouTube. "Users are now in control of what they watch and when they want to watch it. They decide what rises to the top. By joining forces with Google, we'll be able to sharpen our focus on that vision."
Both companies have received corporate approvals for the deal, which they expect to close in the fourth quarter. Under the transaction, YouTube will retain its brand and continue to operate independently, officials said on the call.
In terms of market share, YouTube is the clear leader over Google's competing service: Last month, the video service posted a share of visits four times greater than Google Video, according to Hitwise, a New York Internet market research firm. YouTube ranked first in online video services with a share of 45.97 percent, ahead of MySpace Videos at 21.17 percent. Google Video came in third at 11.01 percent.
"This is an extremely volatile space when you consider the fact that YouTube didn't even exist a year ago in terms of having a launched service," said Bill Tancer, general manager of global research at Hitwise.
Mr. Schmidt stressed that Google Video will continue to exist, noting that it will become "even more integrated with Google overall."
Mr. Hurley, who in previous reports had said YouTube was not for sale, said the Google deal was the right fit.
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