Another amazing Google acquisition. Another amazing deal. Another story that will become part of tech folklore for years to come. The rumors where true and the $1.65 Billion was correct as well. Google is buying YouTube, a company that has been around only a year and a half and who currently employ around 60 people (they were just a dozen a few months back).

The founders of YouTube are all in their late 20’s. The met as employees of PayPal.

From YouTube’s ‘founders’ page:

Chad Hurley, Steve Chen, and Jawed Karim founded YouTube, Inc. on February 14, 2005. Jawed Karim left the company to pursue an advanced degree at Stanford.

YouTube received funding from Sequoia Capital in November 2005 and the service was officially launched in December 2005. Chad Hurley and Steve Chen proceeded to become the first members of the YouTube management team and currently serve as Chief Executive Officer and Chief Technology Officer respectively.

This deal comes on the heels of other recent billion dollar deals in the internet space: MySpace went to New Crop for 1 billion. Skype went to eBay for around 4 billion.

Is this Internet Bubble 2.0?

Eleven years ago, in August 1995, Netscape went public, shooting up to a valuation of $2 billion. This marked the start of the the dot.com era. Google’s IPO in August 2004, put the company at a staggering $ 18 billion market capitalization (today its an even more staggering $130 billion).

After the dot.com crash in 2000/2001 there was a very quiet period, where big stories of huge IPOs and acquisitions in the internet space where not being heard.

Google’s big IPO definitely shook things up. Things started happening again. First it was ‘small’ deals like the acquisition of Blogger by Google and Flickr by Yahoo. Last year the Web 2.0 hype broke onto the scene and things heated up again with Skype, MySpace and now YouTube..

The first internet bubble burst because of overheating and greed. The Bubble 2.0 seems to be more under control. The internet has taken root in every aspect of life and entrepreneurs might have learnt a thing or two from the first bubble (like the importance of MAKING MONEY, for example).

Just a day before the news of its acquisition by Google’s broke, YouTube was busy announcing deals with CBS, Sony BMG and Universal Music. Such deals mean money for YouTube, whose revenue was miniscule, given its big bandwidth expenses. They also legitimize the company in the media world after being tainted by the fact that a lot of copyrighted material is finding its way onto the site.

Big media companies are realizing that online video is the future and that they’d better go with the flow. Consider Sony’s $ 65 million acquisition of Grouper, another YouTube-like video site (for the record, Grouper was founded in 2004, a year ahead of YouTube).

Even Bubble 1.0 survivors are finding new fortunes in the Bubble 2.0. Shutterfly,com, a well known photo storage/printing/sharing site has just done an $300 million IPO recently.

Yet shadows of the Bubble 1.0 remain.

PBS | I, Cringely . August 24, 2006 – The Frank Caliendo Effect:
There are a lot of these video sites, all of them losing money like crazy in hopes of becoming the next Broadcast.com, which was bought years ago by Yahoo in a $5 billion state of suspended disbelief. The leader in this space is certainly YouTube, but there are many, many others.

This video sharing business fascinates me because right now it is a shell game built on a shell game. The video sharing sites are for the most part losing money—throwing, HURLING it away in huge wheelbarrows full, rather like the hyperinflation that plagued Germany right after World War I. And these video sharing sites are buying services from content distribution networks (CDNs), many of which are also losing money, especially if you consider the possibility that some sharing companies will undoubtedly go broke with their hosting bills unpaid. The opportunity, then, is for you and me to start a business that further leverages this financially risky double play. One such example is comedian/impressionist Frank Caliendo (it’s in this week’s links), who sells direct his own very funny DVDs using a simple web site stocked with video hosted for free on YouTube and others. This guy has to be making a killing and it costs him almost nothing. Who needs a studio or network deal with a system like that?

The next few months will be very interesting for the internet market. Expect more acquisitions to happen soon.

Read these related posts on 360east:

• Virgle: Virgin and Google plan human settlement on Mars
• Something is WRONG with Google!
• Is anyone else in Jordan experiencing slowness in accessing Google?
• YouTube is down
• Google Trends: Amman, Dubai, Kuwait