Google Sets Sights on $1.6bn Bid for Youtube

A graphic designer and a technology geek who together created the video website YouTube could soon join the ranks of the world's super-rich by selling their venture to the search company Google. Reports in America yesterday suggested that Google is in talks to buy YouTube for as much as $1.6bn (£855m) in an effort to capture its huge following of users who view video clips more than 70m times a day.

The deal would cement YouTube's reputation as one of the internet's fastest success stories. The site was established 18 months ago in a Californian garage by Chad Hurley, 29, and Steve Chen, 27. They came up with easy video sharing technology which has become one of the world's most popular websites, with 29,000 new clips downloaded every day.

Neither Google nor YouTube would comment on the reports which surfaced on an industry blog, TechCrunch. The Wall Street Journal said a "person familiar with the matter" had confirmed talks were under way but at a sensitive stage. Google's shares jumped by more than 2%.

Google, which is cash-rich from a recent stockmarket flotation, could easily afford to swallow the fledgling business - the rumoured price tag amounts to 15% of its cash balance. But it may face competition - Yahoo, Microsoft, AOL Time Warner, Disney and News Corporation have all been mooted as potential buyers.

Media companies are anxious to find a way to share in the ballooning popularity of online video clips as a potential way to show advertisements and to sell content.

Mark May, analyst at the US broker Needham & Co, said: "The companies on the acquisition side realise this is a space they need to be in and they realise it's going to be hard for them to build sites now. It's probably better to buy than to build."

But the mooted valuation will remind some of the heady prices overpaid for online start-ups with sketchy business models at the height of the dotcom boom. Any potential YouTube owner will also face a headache in overcoming copyright issues from media rivals unhappy with the number of unauthorised television, music and film clips which crop up on the site. There is also the question of how to make money - YouTube is pursuing an advertising-based model but is yet to prove that it can turn its popularity into profits.

If the YouTube price tag is raising eyebrows, so is the price paid for MySpace. One of the men behind the social networking site is calling for a federal investigation into its purchase for $580m (£310m) by Rupert Murdoch, claiming that senior executives conspired to dispose of the brand for a criminally low price.

The site, sold to Mr Murdoch's News Corporation in July last year, has more than 100m registered users, and one analyst has said the company could be worth $15bn within three years.