360 Degrees of Google

Let's look at the next way to value YouTube , which is an important assumption I left out of the above.

2. Value Per Google User

According to various traffic-analysis sites such as Hitwise and Compete, the average YouTube user is "stickier" than the average Google Video user. In other words, people come back to the YouTube site, spend more time on it and sign up and start accounts there. Moving Google Video users over to the YouTube platform will ultimately create more page views (and more ad dollars) from pre-existing Google users.

Too many assumptions must be made to determine what this is "worth," but suffice it to say that Google, with an 11% share of the video market, is definitely focused on ways to increase value per user.

3. Demographics

The aforementioned zero-growth assumption is a bit naive. Maybe YouTube will lose market share, which now stands at 46% of the online video market. However, that's a breakeven proposition at best, considering it has made all the right moves, to date, to increase its market share on an almost daily basis.

But demographics provide a good cushion. Right now, according to eMarketer:

• Online video advertising has increased 71% year over year this past year.

• Online video advertising now makes up only 2.3% of the $16 billion spent annually on online advertising, or about $370 million. By 2010, eMarketer is predicting that online video advertising will make up 8% of the $30 billion spent on online advertising, or about $2.4 billion. If YouTube's market share of that advertising is similar to its market share of online video downloads, then that would amount to about $1.1 billion in ad revenue.

Regardless of how you look at it -- per YouTube user, per value added to Google user or just demographically -- the YouTube acquisition makes sense for Google, just like it would have made sense for any of the other major players.

I'm not sure you can make the same conflation for Facebook, except maybe in the case of News Corp. (NWS Quote)/MySpace. That said, Facebook is now the last remaining private mega-social network. Meanwhile, there are other publicly traded social networks that aren't fetching anywhere near the value per user being accorded to YouTube, but I think that will change over the next year.

Google Gets YouTube -- for Free! By Barry Ritholtz

Adapted from a post in Columnist Conversation on Oct. 9 at 5:55 p.m. EDT

Note that this was an all-stock deal worth about $1.65 billion. Rumored since last week, the news drove Google's stock up $8.50 today, following Friday's nice point gain. Given Google's 215 million share float, this acquisition was essentially free. The deal instantly catapults Google to the top of the pile in the fast growing world of online video. And if anyone can figure out how to monetize serving ads to YouTube's users, it's Google.