The untold story of Google’s $1.65 billion acquisition of YouTube, from those who lived it (GOOG, GOOGL)

The untold story of Google’s $1.65 billion acquisition of YouTube, from those who lived it (GOOG, GOOGL)

youtube 15th anniversary beginnings google acquisition 2x1

youtube 15th anniversary beginnings google acquisition 2x1

From left: YouTube creators Steve Chen, Chad Hurley, and Jawed Karim; Google cofounder Larry Page, previous Google CEO Eric Schmidt, and Google cofounder Sergey Brin.

Noah Berger/AP Image; YouTube; Paul Sakuma/AP Image; Samantha Lee/Business Insider.

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  • YouTube’s sale to Google for $1.65 billion in October 2006 modified the course of Silicon Valley history.
  • In honor of YouTube’s 15 th anniversary, Business Expert talked with early workers, investors, and founders about the whirlwind 18 months of YouTube’s life as an independent business. That story is impossible to inform completely without delving into the weeks and months leading up to YouTube’s landmark sale.
  • From the day YouTube decided to sell to the day the offer was announced referred weeks. In the end, YouTube was hours away from inking a deal with Yahoo prior to deciding to offer Google one swan song at getting the company.
  • The sale came at the perfect time for the new startup: YouTube was burning through cash, running out of server area, and weathering lawsuits threats from record labels. Its staff was working all the time and its founders were growing increasingly wary of how to sustain the business without some muscle in its corner.
  • This is the scoop of YouTube’s sale, including the quiet bidding war, the last-minute deals with a few of the largest rights holders worldwide, and a late-night conference in a Denny’s parking area.
  • Visit Business Insider’s homepage for more stories

In the early hours of an October day in 2006, David Drummond, Google’s general counsel, and Gideon Yu, YouTube’s primary financial officer, huddled over the hood of Yu’s vehicle, which was parked in a Denny’s parking area in Redwood City, California.

As they used the light from their Blackberry phones to review a sheaf of files, a law enforcement officer brought up. He briefly shrieked his siren, casting an intense light on the set of executives. He demanded to know why they were having a clandestine meeting in a Denny’s car park at 3 a.m.

” We’re signing a merger agreement, sir,” Yu stated with his hands in the air.

The officer called Yu over to his car. Yu, dressed delicately in shorts, a tee shirt, and an in reverse baseball cap, walked over and revealed the officer the documents, which specified that Google would purchase YouTube for $1.65 billion. The officer informed them to carry on.

Drummond and Yu, still shaking from the experience, signed the papers and went home, their respective business commemorating for different reasons. Google, for acquiring what would turn into one of the most valuable parts of its growing empire. YouTube, for gaining some muscle in its corner. The company, just 18 months old at that point, was fending off possibly pricey copyright claims and scrambling to support a user base that was growing so rapidly, the website’s infrastructure was breaking.

Though it had already become a global experience, on the within, YouTube was extended almost to a breaking point.

‘ We didn’t have the resources to continue battling’

The months leading up to that day had actually been chaotic for YouTube.

The small team– led by cofounders Steve Chen, YouTube’s chief technology officer, and Chad Hurley, the business’s CEO– was having a hard time to keep up with demand. It was a time prior to innovation like Amazon Web Solutions existed, and YouTube was burning through server area.

” It was quite balls to the wall, I guess you would say. I believe we were working seven days a week,” Yu Pan, an engineer and YouTube’s very first employee, told Company Expert. “We were growing like crazy. The variety of views was exponential. We were burning disk drives like no one’s company.”

Gideon Yu, who signed up with as CFO in September 2006, keeps in mind the group asking everyone they knew for access to server space.

” There was a time when we connected to all of our investors and all of our pals and said, ‘Hey’– and this e-mail actually went out– ‘if you have any servers that you’re not using, can we borrow them?'” Yu stated. “We literally went around to buddies at companies, at their houses, and got every server we could.”

YouTube's first HQ

YouTube’s first head office was above Amici’s East Coast Pizzeria in San Mateo, California.

Katie Canales/Business Expert.

On top of that, YouTube was scrambling to avoid being seen as another Napster-like business

” The creators did not mean it to be a location for pirated content,” according to Roelof Botha, who had actually worked with the YouTube founders years previously at PayPal and pushed his firm, Sequoia Capital, to invest in YouTube.

Zahavah Levine, YouTube’s general counsel and VP of organisation affairs, keeps in mind feeling like YouTube could not keep up.

” We were doing the best we could,” Yu, the CFO, stated.

3rd Ave Sports Bar

3rd Avenue Sports Bar, directly next door to YouTube’s first office.

Katie Canales/Business Expert.

One afternoon, the company had a contentious meeting with Universal Music, which was being “very, extremely aggressive” with YouTube in marking copyright infractions of its music, according to Botha. Later that day, Chen and Hurley made their way to the bar next door to the YouTube office, 3rd Opportunity Sports Bar, where they would in some cases address night to have conversations about the business. They had actually walked around the block in San Mateo and made a decision. At the bar, they informed Yu they wished to offer.

The way Yu tells it, both Chen and Hurley were frustrated by the amount of conferences the business was having about copyright violation, conferences that were becoming progressively hostile. They informed Yu that they had started YouTube to make a good item. This wasn’t what they signed up for.

The group discussed whether it made sense to aim to larger companies for an acquisition, business who had the resources to work out offers and fix infrastructure issues– a business with the “really blunt instrument” of a lot of individuals and a great deal of cash, Yu stated.

After talking to YouTube’s board and its financiers, everybody agreed: it was time to progress with an acquisition.

The bidding war

YouTube’s acquisition took just about three weeks after that night at the sports bar, Yu stated.

While the bidding war for YouTube was stated to include almost a half-dozen players, consisting of Microsoft, Viacom, and News Corp., at the end of the day, there were truly only two competitors: Yahoo and Google.

” The bidding war was really a really little and tight bidding war,” Yu said. “We wanted to keep details flow very tight, decrease the opportunities of leaks. The minute we got rights holders and other folks associated with that kind of a circus, it could have ended a lot more badly for YouTube than it ended up ending.”

Neither Chen nor Hurley came from finance backgrounds, and relied on their investors at Sequoia for recommendations on how to work out the regards to the offer.

” We utilized to have a pizza dinner at my place here, at our home in the dining room. We would all sit around our table, and Roelof Botha supervised of getting the pizza,” Pierre Lamond, a previous partner at Sequoia, stated. “It was clear to both Yahoo and Google that we had a special item, that it would be very tough to compete with. We had the tailwind already.”

Yu, who had been Yahoo’s treasurer before joining YouTube, stated he called his old associates and told them they had a possibility to purchase YouTube. If Yahoo was interested, it needed to set up a meeting right away.

What followed seem like Silicon Valley tradition, however it’s been well-documented: Due to the fact that the YouTube founders had actually become so popular in Silicon Valley, they had to select a meeting point no one would notice. They selected a Denny’s in Redwood City, a 14- minute drive from YouTube’s workplaces.

On the very first day, Hurley and Chen satisfied Google’s Larry Page and Eric Schmidt there. The next, executives from Yahoo. (Chen told journalist Sarah Lacy at TechCrunch Disrupt in 2011 that he ordered the mozzarella sticks.)

Denny's Redwood City

The Denny’s in Redwood City, California.

Katie Canales/Business Insider.

Quickly, Google made a deal.

On The Other Hand, YouTube had been working on deals of its own with the music labels in hopes of avoiding pricey copyright claims.

At the time, Levine and Maxcy were negotiating three more deals with huge rights holders as quickly as possible. On the day YouTube revealed its acquisition, it also announced three different offers: one with CBS, which would allow YouTube to relay CBS programs; the other two were with music labels, Universal Music Group and the predecessor to Sony Music, allowing YouTube to air their video.

” We were negotiating the acquisition costs between Yahoo and Google simultaneously with those rights deals, and we were stating to Yahoo and Google, ‘Look, just presume that we’re going to get those deals done and let’s negotiate appropriately,'” Yu stated.

Levine said she basically moved into the law office they were dealing with at the time.

” I lived in San Francisco, however I couldn’t even pay for the time to go back and forth in between Palo Alto and San Francisco,” Levine stated. “I took a hotel room right next to the law practice where I slept an hour or two a night.”

As if there weren’t currently adequate moving parts, YouTube had outgrown its San Mateo office and was planning a relocate to San Bruno. Sequoia’s Lamond had used his connections with higher-ups at The Space to get them to rent their old head office to YouTube.

The strategies to transfer to the brand-new workplace had actually been in location for months, well prior to YouTube had decided to sell, but the timing made things complicated for Levine, who was still negotiating the licensing offers along with Maxcy.

” We remained in the workplace at like, 2 o’clock in the morning on a Saturday night, hammering out these offers, and the movers existed loading everything up,” Levine stated. “I remember being on a call with Sony Music and unexpectedly the call was disconnected and the movers had actually pulled the plug of some piece of hardware that was related to our phone system and our printer. We were stating, ‘No! Stop! It’s OK! Do not detach these phones, do not detach our printer!'”

One last chance for Google

Denny's parking lot Redwood City

The Denny’s parking area in Redwood City, California.

Katie Canales/Business Expert.

By early October, YouTube was close to signing a deal– however not with Google. YouTube had a conference on the books with Yahoo for a complete day of due diligence, and the plan was to sign a term sheet for an acquisition at the end of the day, according to Yu.

” We put Yahoo on the ‘back-burner’ while we pushed Google for a higher rate,” Lamond stated.

The YouTube team proposed $1.

Google concurred to the rate, and YouTube stated it was prepared to do the offer.

Yahoo declined to comment on its participation in YouTube’s sale.

‘ It was all on adrenaline’

YouTube second HQ

YouTube’s 2nd headquarters in San Bruno, California.

Katie Canales/Business Insider.

From the day the term sheet was signed to the day the deal was revealed was a matter of days– Chen estimates it was 5, Levine and Yu both pegged it at about a week.

” I think what made it even more poignant for numerous of us was that the competitors for YouTube at the time was Google Video,” Byrne stated.

While some YouTube employees were in-the-know about the acquisition, others, like Misty Ewing-Davis, a content mediator, weren’t clued in.

A ‘pretty huge step up’

Life remained primarily unchanged for the YouTube crew after the acquisition was finished in November.

Chen left YouTube for Google in 2009, and moved on from the business two years later on.

Most of the early YouTube workers noticed only small modifications to their life, specifically at.

YouTube current HQ

YouTube’s current headquarters in San Bruno, California.

Katie Canales/Business Insider.

However Google had actually guaranteed to let YouTube keep doing what it was doing, to remain hands-off and let it grow, and to keep promoting the neighborhood of creators YouTube had constructed. It kept that promise.

Even under the new ownership of a tech giant, Chen and Hurley had control.

Botha, the Sequoia partner who served on YouTube’s board, remembers walking into YouTube’s workplace days after the offer was announced.

” I stroll in, and they had actually changed everyone.

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