Google has agreed to purchase online video phenomenon YouTube for US$1.65 billion (AU$2.21 billion) in stock, the companies announced Monday in the US.
The deal, which had been rumoured for days, will dramatically improve Google's video-sharing service with one of the Internet's hottest properties in YouTube, which allows Net users to upload video clips and share them with the world, for better or worse.
YouTube will operate independently, and the companies will work together on building new features for independent users as well as for aspiring directors, they said in a press release. The deal is expected to close in the fourth quarter of 2006.
"This is one of many investments that Google will be making to put video at the heart of a user's online experience," said Google CEO Eric Schmidt on a conference call after the deal was announced.
"When we looked at the marketplace and saw what was going on, we saw a clear winner in the social networking side of video, and that's what drove us to start the conversations with YouTube."
From the YouTube side, co-founders Chad Hurley and Steve Chen described their excitement at taking advantage of Google's deep pockets and advertising contacts as they continue to build out their site.
"We now have the resources to take our service to the next level," said Chen, who serves as YouTube's chief technology officer.
Google's acquisition of YouTube comes as online video is really starting to hit its stride. As more and more people have signed up for broadband Internet connections and the technology behind video-sharing services has improved, traffic to YouTube's site has skyrocketed. The site has about 45 percent of the online video market, according to recent figures from Web traffic monitor Hitwise.
Users have made a very big deal of uploading videos of themselves, sharing the minute details of their lives, dancing to popular music or, more controversially, rebroadcasting clips of popular television shows.
One early example of the phenomenon was the frenzy around the comic "Lazy Sunday" video, pulled from an airing of television's Saturday Night Live.
NBC first demanded that YouTube pull the sketch from its site after people flocked to the hilarious rap song featuring two mild-mannered cast members affecting gangsta-rap personas while recalling a trip to the movies to see "The Chronicles of Narnia".
But YouTube later cut a deal with NBC to allow YouTube users to post content from NBC programs, and it has followed up that deal with others involving companies such as Warner Music and on Monday, Universal Music Group, Sony BMG Music Entertainment and CBS.
Around 100 million videos are available on YouTube on a given day, with 65,000 new videos added every day, according to the company's Web site. It cited numbers from Nielsen Net Ratings, claiming 20 million unique visitors a month.
All of that content requires search technology to make it easier to find exactly what users are looking for, and improving YouTube's search capabilities with Google's technology will be one of the first priorities of the merged organisation.
With this move, Google has launched itself ahead of competitors such as Yahoo and Microsoft in taking control of online video, Forrester's Bernoff said.
"Every one of these portals now of any size has announced its own user-generated content area, it's apparently very easy to put in place, but that doesn't help much. The people at YouTube have figured out how to do this better, and I think the other portals have to implement a system similar to this to be successful," he said.
Microsoft was looking into buying something like YouTube earlier this year but eventually decided to build its own video sharing service, known as Soapbox, according to Whitney Burke, a spokeswoman for the company.
"We are excited about the potential we are seeing in the beta of Soapbox on MSN and believe building our own solution is a more cost-effective way to compete in this new space," said Burke in a statement.
CNET News.com's Anne Broache contributed to this article.
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