The founders of the video website YouTube last night accepted a $1.65bn (£880m) takeover offer from Google for their 20-month-old venture, which has a big online following but has yet to make money.
Chad Hurley, 29, and Steve Chen, 27, who set up the site in a California garage, said they were attracted by the prospect of adding Google's cutting-edge search technology to enable users to pinpoint clips more accurately. Mr Hurley said: "Google has demonstrated how great ideas can change the way people find and use information."
Under the deal, YouTube will remain a separately branded entity. Google will pay for the company entirely in shares.
Mr Hurley predicted that Google's financial resources would help to build a business model able to attract media companies keen to publicise licensed clips and to avoid a possible mountain of copyright litigation. "We'll have the resources to build systems so that copyright holders can benefit from the site," he said.
Around the world, people watch videos on YouTube more than 100m times daily. About 65,000 clips are uploaded on to the site every 24 hours and the monitoring agency Hitwise says YouTube accounts for 60% of all videos viewed on the net.
Google's chairman, Eric Schmidt, said YouTube's founders bore remarkable similarities to the search engine's creators, Larry Page and Sergey Brin.
"Chad and Steve remind me, when I first came to Google, of what Larry and Sergey were like," he said, describing them as remarkable entrepreneurs. "What tipped us over was not the business relationship here, but their vision," he added, describing the tie-up as "the next stage in the evolution of the internet", with communication moving from words to video streaming.
Google's shares rose by 2% on the technology-dominated stockmarket Nasdaq yesterday. The search company fought off interest from a host of rivals to secure the takeover.
However, not everybody was convinced of the logic of the takeover. Critics of YouTube maintain that the site is full of unauthorised clips from music videos, films and television programmes. Some analysts have suggested that the only reason it has not attracted many lawsuits to date is that everybody knows it has little money to pay out.
Josh Bernoff, of the American firm Forrester Research, said: "I still need to hear how the copyright situation needs to be solved. In the absence of a solution to that, Google has just opened itself to a huge lawsuit. This is pretty risky unless they have a solution to that problem."
YouTube is yet to develop a way to attract significant revenue. One possibility is that users could be required to sit through brief advertisements before viewing certain clips. Mr Hurley was non-committal on this, merely saying the companies would be exploring "lots of options".
The deal makes YouTube's founding duo into two of America's wealthiest businessmen. It will also mean a windfall for Sequoia Capital, a venture capital firm which provided $11.5m of seed capital to YouTube.
Record companies come calling
In the hours before last night's deal, there was a sign that YouTube's legitimacy was growing among big media players. Vivendi's Universal Music, Sony BMG and the television network CBS all announced they were licensing music videos and video clips to YouTube in exchange for a share of advertising revenue.
The financial terms of the deals were not disclosed but they represented a significant coup for the upstart website. Just a month ago, Universal's chief executive, Doug Morris, accused YouTube of violating copyright laws and claimed it owed millions of dollars to record labels. He took a more amicable line yesterday: "YouTube is providing a new and exciting opportunity for music lovers around the world to interact with our content."
The deals will provide YouTube with everything from soap operas to NBA basketball. In a research note, stockbroker Jeffries & Company said: "The fact that YouTube was able to secure the Sony and Warner Music agreements on its own today may already imply less risk for Google."
It reflects how the growth of online, user-created video has emerged as a potential source of revenue for the sagging recording industry. "A large number of people absolutely love these sites, and so connecting artists with their fans using this viral video platform is incredibly important to us," said Thomas Hesse, Sony BMG's president of global digital business.
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