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.