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Ankur Joshi

A Case Study Rohit
Google Inc..
Google began as a research project by Larry Page and Sergey Brin, two PhD students at Stanford
University in California in early January 1996.

They came up with the new concept of a search engine which would be faster and based on the
ranking of pages visited.

The search engine was originally name ‘BackRub’ and then it was named Google (the term was
obtained from the Mathematical constant Googol- which meant 1 followed by 100 zeros).

Google’s ranking mechanism was patented on September 4th 2001

Advertising based on search keywords which made it possible for the advertisers to reach the right
customers at the right time. The ads were text based
Google Inc..
The IPO (Initial Public Offer) of Google came out in August
19th 2004
Google was listed at NASDAQ under the name GOOG.
The initial offer of 19,605,052 shares was at a price of US$85
Google was gaining strength and backup capital to venture
Google’s Revenues too were growing at a fast rate And
and research into newer markets
adding to that was the lower growth in its costs Thereby
increasing its profits.

The Shares of Google showed a steady growth in the year

Exhibit 11 : Google’s Revenue VS Cost Growth
Google Inc..
By 2006 Google had already surpassed its nearest rivals and the more established
Yahoo and Microsoft search engines and was the clear market leader in that

In January 2006 it announced it acquisition of ‘DMARC’ which specialized in providing automated
systems for companies to advertise on the radio, this merger allowed Google to enter into two
niche’ markets internet and radio. It also tied up with News Papers and Magazines to Setup more
channels for advertisements for its users.
Google Inc..
In January 2004 Google officially launched ORKUT (, with the idea of taking the
share in Social Networking market. Orkut virtually changed was idea
the whole launched
of socialin
networking in
many countries April 2004 and it was a success

Google decided to enter into other markets, but it knew that to enter into diverse areas such as
desktop software, satellite imagery, chat software, communities, research papers, etc it needed to
tie up with those that have already setup there.
You Tube..
YouTube was founded by Chad Hurley, Steve Chen and Jawed Karim

The site was activated on February 15th 2005 but was not opened to public initially,
The site was opened to public in December

Head Quarters at San Bruno Employee strength as on 2006 was 65

YouTube came out with a very easy to use and dedicated platform for users to share all sorts
of video content in a fast and interactive manner

It provided users not only the chance to view video content but also share user-generated, self
made videos, along with movies, movie clips, music videos, sound clips, TV clips, and just about
anything that could be captured in a video camera or converted to a movie

YouTube thus created a market for itself which is called Latent Marketing; it caused video file
sharing to be an important part of social networking, thus creating a new community in itself.

“We want to entertain, inform and empower people with video around the
world” Steven Chen
You Tube..
In May 2006 Wall Street Journal quoted that YouTube was hosting over 6 . 1 M i l l i o n videos and
that the site was being viewed by more that 1 0 0 M i l l i o n v i e w e r s everyday at YouTube

“We have a vision that in 18 Months we will have every music video that has ever been
produced” (Steven Chen YouTube Founder)

UserVisits to Video Sites in2006
1% MySpace
0% 0%
4% 2%
Yahoo Video Search
7% MSN Video Search
43% Google Video Search
10% Aol Video
24% Ifilm

Copyright@ Ankur Joshi and Rohit Kathotia
Google Inc..
What we saw with
Google’s Growth
Google Planned to Venture into the Video Advertising
Google’s Growth
Google Planned to Venture into the Video Advertising

This is exactly where Google and YouTube crossed Path.
YouTube was the Market Leader in the Online Video Sharing
Google’s Growth
Google Planned to Venture into the Video Advertising

Google Video was not showing too much growth in the user base, it lags way behind
If we see the number of Visitors per Month then too we see that YouTube had an Exponen
Why did Google Eye
ty YouTube was the most popular online video sharing
Over 100 Million Videos being watched everyday
ty YouTube was not just a site anymore, It was a
A large Consortium of Loyal users.
BlunderAfter refusing the Deal with MySpace early in the year
for $580 Million, Google did not want to make the Same
The Revenue that Google could generate if even a
fraction of
the site visitors viewed the ads would be phenomenal

EXIBHIT 10 : Architects of the Deal
The Deal- A Pit or a
If we wanted to, we could instantly turn this into $10 million in revenue per month by
running pre-rolls [short video ads] on the videos. But at the same time, we’re going to make

sure that whatever revenue model we’ve built is going to be something that’s accepted by
the users”. Chad Hurley

Wall Street Journal in May 2006 came out with the revelation that YouTube was hosting 6.1

Million videos in its site which would require 45 terabytes of space.
It would require a double of this space in the next 1.5 years and 4 times in the next 2 years,

adding to it the space for maintaining the user records and information.

o u
The report also found out that YouTube was using Internet Bandwidth at a cost of $ 1 . 1

M i l l i o n a day which would soon make it unprofitable it the rate increased

Viacom Inc. And VeriSign had already launched the legal suit against it. YouTube knew that it

did not have the position or the resources to fight and win this legal tussle.

Google is operating from deep in the hole with YouTube. YouTube had revenue of $15 million in
2006, which means Google paid more than 100 times the video site's annual intake”. Bear
Stearns & Co. Analysts
The Deal- A Pit or a

May Take
The Deal-What remains to be
Why did Google make it an All Stock Deal ?

We feel that it would be advantageous to Google and YouTube both since Google would not have
to liquidate its assets or get additional funds from other sources and YouTube stakeholders did
not have to pay taxes and they got in the additional shares of Google which would have been a
good investment.

Did the Deal pay for Itself ?

Google stock prices showed that when Google stuck the deal, since it was an all stock deal
the share price of Google as on week ending October 9th was $420.5 a piece which gave
Google a market capitalization of $127.9 Billion, the very next week after the week
Google’s Stock was worth $427.3 giving it a market capitalization of $130.2 Billion

Why did Google not change the management or the location of YouTube?

Google knew that YouTube was a close knit family and thought some of its ethics were not in
tune with Google’s growth and ethical structure, it had to see that YouTube does not break down
so it agreed that YouTube would not be broken and all its 65 employees will be retained and
Steven Chen and Chad Hurley would continue to head the new organization.
A food for thought
Why did Google leave YouTube to function as Independent ?

Would the Deal finally meet its profit expectation and can Google generate
the profits from YouTube ?

How long would the Break Even take ?

Why does Google continue with Google Video , does it have a plan to
dissolve either one?

How long would it be before YouTube breaks down considering its
Organization Layout?

if it was a good intelligent deal or a fire pit for Google. If it was a Win situation for
both or who won a greater share? ??? ?
"We discussed the possibilities and the excitement we both shared for video on the
Internet. They have the resources to help us accelerate that." Chad Hurley


Our companies share similar values; we both always put our users first and are
committed to innovating to improve their experience. Together, we are natural partners
to offer a compelling media entertainment service to users, content owners and
advertisers."Eric Schmidt CEO Google Inc