Yesterday, TechCrunch reported a rumor that Google Inc. and YouTube Inc. were in talks of a YouTube acquisition of $1.6 billion. TechCrunch founder, Michael Arrington reported that he received a phonecall from a VC confirming the price as well. Arrington even reported that the chances of it happening was 40% true, but after this was posted on TechCrunch, it set off a media craze. Everyone believed that it was true, except a few, including myself, some of the people that commented on that post, and Om Malik of GigaOm.

Malik compared the chances of the acquisition happening with the same chances of him “dropping 40 pounds.” I definetely agree with Malik about the chances of it happening are pretty slim, but then again we don’t know how capable Malik is in dropping pounds.

Let me explain to you the reasoning behind my doubts:

1. First of all is the obvious: $1.6 billion is a lot of money. Even if Google’s market cap is over $100 billion, why should they spend so much on acquiring a company and then dealing with the courts and lawyer fees after acquiring it when they already have the technology available. Have we all forgotten about Google Video?
2. Secondly, Apple and Google are partnered now. What does Apple and Google have in common? They charge $1.99 for videos!! YouTube is completely for free. Buying YouTube would not help ripen the relationship Google and Apple are developing (like my “ripen” pun?).
3. How does YouTube currently make money? Three ways. First there is sponsored channels such as Paris Hilton’s and NBC’s. Second there is funding coming in from VC firm, Sequoia Capital. Third of all, they’re depending on Google Ads to make money, but in this same process, Google is making a lot more money from their Adwords program generated by YouTube hits and clicks.
4. If Google buys YouTube and attempts to converge it with their own business and it flops, think about how much money Google loses. Right now the YouTube model works for them and Google is making money already from their site. However, YouTube can always threaten to side with other advertising programs and switch away from Google Ads to possibly speed up talks (if they are actually talking right now).

Just something to think about during this whole media craze. If the deal does go through, then it definetely throws out my points, but I think my points are valid.