Google just agreed to acquire YouTube for $1.65B in stock to expand its ad inventory and shore up its video sharing site. Cofounder Jawed Karim will no doubt soon be judging the Miss Bangladesh pageant like a Bangla Sabeer Bhatia He appears to have a Bangla dad and a German mom.

Like Marc Andreessen, Karim (adviser) and cofounder Steve Chen (CTO) went to Urbana-Champaign. Karim graduated in CS/Engineering two years ago. He’s now a CS master’s student at Stanford (resume). Cofounder Chad Hurley (CEO) attended Indiana University of Pennsylvania.

Karim met his cofounders at PayPal, which has a more solid biz model than YouTube. The new startup had amazing uptake but was hesitant to take ads because many of its video clips are pirated. It’s the same problem Napster had:

They are trying to push the obligation of licensing rights out on the rights holders by hiding behind the Safe Harbor rules of the DMCA. Make the rights holders find the copyrighted materials out of 60K uploads a day rather than make YouTube find the copyright owners of the materials uploaded. As I have said many times, that shit ain’t gonna fly. [Mark Cuban]

… there are widespread concerns that YouTube may eventually draw a hailstorm of lawsuits — especially if the company becomes part of a deep-pocketed acquirer. Doug Morris, the chief executive of the Universal Music Group, recently called YouTube and MySpace “copyright infringers” and said that the sites “owe us tens of millions of dollars.” [Link]

“If we wanted to, we could instantly turn this into $10 million in revenue per month by running pre-rolls [short video ads] on the videos. But at the same time, we’re going to make sure that whatever revenue model we’ve built is going to be accepted by the users.” [Link]

But YouTube is one of the easiest video sharing sites:

Cofounders Chad Hurley and Steve Chen

• Its video conversion and Flash player makes it easier to embed video clips in Web sites. Before, you had to upload in a variety of formats and then explain to users how to install the correct player.
• It shoulders the financial burden of serving the video rather than raising your own Web hosting costs.
• Its progressive downloading rather than streaming let even users on slow connections watch clips.

The site’s popularity surged in December 2005 when it hosted the popular Lazy Sunday clip from a Saturday Night Live broadcast. [Link]

Buying YouTube would instantly vault Google to the lead in the business of online video, which is drawing increased interest from advertisers. Its own fledgling offering, Google Video, remains a relatively small player. [Link]

YouTube’s growth rate is astonishing, recalling Netscape and Google:

YouTube is the fastest growing site in the entire history of the web. Zero to top 10 in 12 months. [Link]

Estimates of how much the three cofounders will make range from $100-200M each, pre-tax. The lead VC, Sequoia Capital, reportedly owns ~30% and should make ~$500M from its $22M+ investment for a 20-25x ROI (simplified). YouTube took a $3.5M round 1, $18M round 2 and was rumored to have accepted an unannounced $25M round 3 to help defray their $1M monthly bandwidth bill.

Google’s YouTube buy is the new boom’s answer to Yahoo’s 2000 purchase of Broadcast.com for $5.7 billion… Paying $1.65 billion for a company that loses over $2 million a month is just a more sensible manifestation of the bubble-acquisition archetype. [Link]

The startup is only one year, nine months old:

Mr. Hurley and Steve Chen started YouTube after the two struggled to share videos of a dinner party in January 2005. [Link]

Jawed uploaded YouTube’s first video… on April 23rd, 2005. [Link]

This is Google’s biggest acquisition to date in terms of price and brand awareness:

… this marks Google’s first significant “out of brand” acquisition, the company’s first true brand-management challenge. I’m not counting Blogger in here because, well, it wasn’t this big. [Link]

A blogger speculates that Sequoia pushed the sale to Google as it invested in both companies:

… an old media company would not want to take on the copyright liability. An IPO is unlikely since they have way too many risk factors…

But a sale to Google ensures that in the event YouTube does pull a MySpace and further explodes, the rise in value is reflected under Google’s share price; and if Youtube were to fizzle out, well, at least they cash out before YouTube goes the way of Friendster, who lost its early lead to MySpace. [Link]

Here’s an interview with the cofounders on Charlie Rose:

Om Malik was so sure the acquisition wouldn’t happen, he pledged to lose 40 pounds if it did. See ya on the treadmill, Om

Congrats and rock on.