Managing negotiation process / Google & Youtube negotiation

Essay by lyalyaUniversity, Master's February 2009

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In October 2006, Google Inc. announced that it had reached a deal to acquire YouTube for US$1.65bn in Google Stock. The deal closed in November 2006.

I take up the negotiations from Friday October 9th 2006, with Google in talks to acquire YouTube after bidding 1.65Bn for it. Google will pay YouTube in Google stock which means that the owners could have a lot more than the $1.65bn in a few years time if Google continues to grow. YouTube investors Sequoia are rumoured to take $480M of this stock portfolio. Google claim that if negotiations are successful and the acquisition goes through, "YouTube will operate independently to preserve its successful brand and passionate community".

Google Inc. is an American public corporation, earning revenue from advertising related to its Internet search, e-mail, online mapping, office productivity, social networking, and video sharing services as well as selling advertising-free versions of the same technologies.

Google was co-founded by Larry Page and Sergey Brin while they were students at Stanford University and the company was first incorporated as a privately held company on 4 September 1998 (Wikipedia.org). YouTube is a video sharing website where users can upload, view and share video clips. YouTube was created in February 2005 by three former PayPal employees (Wikipedia.org).

For Google the purchase gave the company the capabilities to tap into the potentially lucrative online video and social networking markets as some market analysts at the time criticised Google for being too connected and reliant on advertising linked to keyword searches. This acquisition would further strengthen Google's stranglehold on online advertising and would give it an advantage over rivals such as Yahoo, Microsoft, MSN and NewsCorp (the company that owns MySpace). Experts at this time also felt that Yahoo, Microsoft & NewsCorp expressed an interest in buying YouTube, which probably stung Google into action, and precipitated their bid.

Bill Tanner, the General Manager of Hitwise, believed that because of this bid MySpace would need to promote its own video service more aggressively on its site to combat the Google-YouTube alliance. Martin Pyykkonen, an analyst with Global Crown Capital, viewed Google's bid as a pre-emptive strike on rivals Yahoo, who were rumoured to be in negotiations with Facebook. Another analyst, Clayton Moran of Stanford, opined that Google made this bid in order to become more competitive with MySpace, which was ranked in second place in online video market share at this time.

Google bid this high price for YouTube ,even though YouTube is at present unproven with regard to its revenue potential, as it needs to combat the growth of MySpace and also to help Google extend its highly successful text-based search platform into video.

Eric Schmidt, the CEO of Google, at this time said that this acquisition, if it went through, would be one of "many investments" that Google planned to make in online video. He is convinced that the Google YouTube combination would make Google more desirable to advertisers, as "this is just the beginning of the Internet video revolution". Chad Hurley, CEO and co-founder of YouTube, feels that this alliance will allow YouTube to focus even more on copyright protection since Google has more financial and technical resources to dedicate to this issue."Academic ReferencesAdair, W., & Brett, J.M. (2003). "The negotiation dance: Time, culture, and behavioural sequences in negotiation". Working paper, Dispute Resolution Research Centre, Northwestern University, Evanston, IL.

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