Google CEO Eric Schmidt: 'We Voluntarily Paid $1 Billion Too Much For YouTube'

Did Google overpay for YouTube? Absolutely, says Google CEO Eric Schmidt.

CNET got their hands on Schmidt's testimony before Viacom's laywers, in which he demystifies why Google saw fit to pay a whopping $1.65 billion for YouTube -- which even Schmidt says he valued at only $600 million - $700 million at the time of the acquisition.

The $1 billion premium, Schmidt confesses, was to blow the competition out of the water and to ensure Google's competitors didn't swoop in and steal the deal.

Schmidt's exact words, from his deposition to Viacom attorneys:

Schmidt: Sure, this is a company with very little revenue, growing quickly with user adoption, growing much faster than Google Video, which was the product that Google had. And they had indicated to us that they would be sold, and we believed that there would be a competing offer--because of who Google was--paying much more than they were worth. In the deal dynamics, the price, remember, is not set by my judgment or by financial model or discounted cash flow. It's set by what people are willing to pay. And we ultimately concluded that $1.65 billion included a premium for moving quickly and making sure that we could participate in the user success in YouTube.

Three years later, YouTube's users have swelled from 12 million (in May 2006) to more than 100 million users in the US alone. As for cash flow and profits, however, that one still has Google (and YouTube) stumped.

Read an excerpt of Schmidt's deposition on CNET here.

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Comments

[jsgaetano]

It's pretty shocking how giddy Schmidt is about squandering a billion dollars... like that's something to brag about.

But hey, he probably figures they should get rid of all the money they can, before everyone realizes Google is a $40 stock.

[jsgaetano]

And besides, Schmidt had this whole huge pile of money to play with, and people lining up at his door to give him more!

When you are Teh Google, it doesn't take all that long to make a billion dollars.

[omenapt]

More "bubblenomics" with played with Monopoly money!

Fun , fun, fun!

[omenapt]

MOre 'bubblenomics

[breakingpoint]

Google thinks they can buy the rights and control knowledge.

Their motto, "Don't be evil"
That's all well and good, but a double edge sword as well because it is also what evil would say.

[sposton]

This is a clear argument against corporate bigness. Read E F Schumacher "Small is Beautiful". It is more relevant than ever. Companies should not grow much beyond what the transaction cost dictates. There are absolutely no benefits for the society - just enormous hidden costs.

[Jaywalkker]

I understand you in the grand overarching sense, but the Internet, at this time is something completely different. With Youtube is Hulu and too many numerous other free video upload sights. Right now Youtube is a boon to users, an albatross to google and its free.

[sposton]

And it would have been so even if Google did not acquire it. The fact that Google is now "bigger" does not serve this society one bit. That this acquisition doesn't seem to be serving Google either is a bit irrelevant; in fact that is often the case. Corporations acquire other companies and the only benefit to them is that they are getting bigger. That satisfies the underlying capitalistic requirement of growth but it brings very little value to our society. We would be better served by networks of smaller, independent and competing companies. When bigness is needed it is better to have collaborative networks than one big company.

[DavidMG]

What better example of what’s wrong with capitalism? Why should any company have a billion dollars to spend this way - especially when people are starving, homeless, without medical ins. etc. People are entitled to a system that provides a measure of economic justice – capitalism what some people are calling “communist capitalism” – I would call oligarchy – is creating more inequality. The funny thing is that it would, according to one study by Princeton’s Peter Singer would require very little sacrifice by rich people. See http://people.brandeis.edu/~teuber/singermag.html

[scottco]

Yo, Eric.
We're having a huge yard sale this weekend. Mind stopping by?

[CTSnowman]

This is what happens when people are handed money that they did not earn. More bubble economics.

[unitron]

If they didn't earn it, where did it come from?

[MarcusT]

They print it. It's called stock.

[nakedhand]

Oh corporate love... Youtube and google video is great. What an archive, a gift to humanity for sure. But I cant help thinking...

How about throwing an extra billion (if you can throw around that kind of money) into say; Help improve the conditions for the 35 million poor (figure based on food stamp users) in the US. Build the biggest solar panel array in the US. Pay for the repairs of the most needing stretches of US infrastructure. Restock public schools across the nation with new books and equipment. Working on solutions to cleaning the polluted drinking water of the US and so forth.. but no, of course not.

[unitron]

They spent that extra billion to protect themselves from competitors.

They are a business with a fiduciary responsibility to their shareholders, remember?

[nakedhand]

Excellent word there; Fiduciary.

Anyway. I am afraid you did not get the point.

[Kuuba]

www.scroogle.org folks, click on Scoogle Scraper

[savroD]

Another idiot CEO... I wonder what wonderful business school this idiot came from. Also, anyone want to join me in starting a consulting firm that will outsource CEO jobs to China? Just think of the tons of money we could make for the true owners, the shareholders!

[unitron]

Yeah, he was such an idiot that Google dutch-auctioned their IPO, which is why they have had tons of cash on hand since day one instead of most of the run-up in price going to the Wall Street outfits that floated the offering, the way it usually does.

You could have bought Google for a little under $300 a share earlier this year. The other day it was around $500. I'd say the shareholders are doing alright.

[jsgaetano]

Doing alright... at least until reality hits and people realize Google is only worth like $40 a share.

[v eyepete]

Perhaps when Google has another billion to throw around it might remember all the homeless people and the all the children who go to bed hungry in the 'greatest country in the world' every night.

Perhaps they can get U tube to load faster. It is pretty infuriating as it is.

[sedan]

Try this:

http://fixexe.com/youtube-loading-slow-its-time-to-speed-up/

It worked for me.

[spaghettidinner]

Because a company can afford a large acquisition then they should be solving world hunger and homelessness? Our government wastes trillions on war. Besides, Google has http://www.google.org/ where they are working on solving problems that lie within their intelligence. The greatest country in the world comes from a combination of good elected officials and public participation. I would argue that YouTube has done a lot to encourage public participation and civic engagement working as a communication tool that can bypass the large media sources and go straight to a core audience for practically free.

[ObamAtomic]

Too much money to burn,youtube is failing?

[hellostats]

It's probably worth it in the long term. Think about it. Youtube is a significant part of the future of the internet and television.

[ewj1]

To date YouTube is still sucking money out of Google and it is failing in the internet TV area, Hulu, Tivo, Zune, & Itunes is way a head of it on quality, and Facebook, Ustream, and Qik is on its heels.