Several blogs and newspapers (NYT/WSJ) are hinting at the possibility of a large acquisition of Youtube by Google for 1.6 USD billion.

This would be a huge change to the online video market, allowing Google to be number one in this fast growing category, getting an improved position to extend its text-ads/search domination to video-ads, which is the definitely the next big growth frontier.

While some analysts think of Googletube as the result of a perfect match, I definitely understand there would be benefits from structuring the deal as an extended alliance (MySpace style) – certainly a safer option for Google (see Mark Cuban’s opinion)

A Myspace style deal would have following advantages:

• EXTRACTING THE SAME ECONOMIC ADVERTISING VALUE (blocking its competitors from showing ads on the site and revenue sharing for less USD)
• AVOIDING DOWNSIDE RISK OF COPYRIGHT INFRINGEMENT (check this polemic previous post about how Youtube would face its end soon).

However my feel is, that there is a high chance of the acquisition going through in the end, despite Google never having made any such large-scale acquisition in its entire history. The last 6-12 months have been a collection of deals by Google attempting to pre-empt Yahoo and MSN to get distribution: From the Dell deal to have the Googlebar preloaded for 2 USD per PC, to the multi-year exclusivity deal with MySpace worth 900 USD million.
I believe Google will decide to aggressively bet on user-generated videos, believing it will have to face copyright issues and confront being sued by 3rd parties anyway with Google Videos, so why not bet on a positive outcome thanks to it excellent lawyers and go for full market leadership if everything goes right.

Aggressive? Yeah, but hey we are talking about the same company that:

- offered 2GB free mailspace for anyone (300-500 times more than competitors),

- is building a gigantic proprietary computer network with 10s of thousands PCs running its own OS

- is starting to offer free Wifi for the full city of SanFrancisco (and soon NY?)

This move would certainly not come as a surprise to me.

Good luck Google