Google Nets Youtube in $1.65bn Takeover

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 at 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 with 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. 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.