When Google paid a brain-numbing and wallet-busting $1.65 Billion back in 2006, a lot of observers questioned the amount paid and why Youtube was worth such a premium. We are now getting some answers.

Dont forget that Youtube was an 18 month old website and made little revenue, the deal handed Google full control but led to criticism from skeptics saying that Google had overpaid and would never see a return on its investment.

Google have now revealed why it paid $1.65 billion for the video site when Googles own directors had estimated YouTube’s worth to be $600-$700 million.

And the reason for the massive overpayment? Google believed they had to offer that much or Microsoft or Yahoo would buy up the increasingly popular video site.

Google CEO Eric Schmidt said:- “This is a company with very little revenue,” Schmidt said while being questioned by Stuart Jay Baskin, a Viacom attorney. “(YouTube was) growing quickly with user adoption, growing much faster than Google Video, which was the product that Google had. And they had indicated to us that they would be sold, and we believed that there would be a competing offer–because of who Google was–paying much more than they were worth…We ultimately concluded that $1.65 billion included a premium for moving quickly and making sure that we could participate in the user success in YouTube.”

So in effect they offered the crown jewels because they thought someone else might buy if they didnt! Its an interesting way to do business, and lose a bucketful of cash.

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