They didn't acquire it because they thought their tech was great or that they had a great product. They acquired it because a) the team was local and b) because sequoia invested in it.
Larry Page: “I think we should look into acquiring YouTube” (2005) - https://news.ycombinator.com/item?id=28424339 - Sept 2021 (245 comments)
FWIW I think their reasoning must have changed drastically in the year between those initial emails and when they actually acquired Youtube. The emails suggest $10-15M as a price. They ended up paying $1.65B, which shocked everyone at the time (and now seems small). The difference is that in that year, YT grew exponentially. So this is actually an example of a high-growth win; indeed it's one of the classic examples.
This sequence of tweets kind of confirms that:
https://twitter.com/JGamblin/status/1433847336459964420
https://twitter.com/jhuber/status/1433863045613174784
https://twitter.com/JGamblin/status/1433865429932462083
https://twitter.com/jhuber/status/1433866494752935938
(the last one is the important one but the sequence is amusing)
Well, the actual fact is that Youtube was a great product with twice as many features as Google Videos as documented in the San Jose Mercury News diagrams published at the time. And growing faster.
So however Google discussed (underestimated) it at the time, Youtube was not only a credible product, but a better one, which was understood by Google, if unstated.
IOW, Google might have been arrogant about the difficulty of building a similar product, but that doesn't change reality that they didn't.
> They acquired it because a) the team was local and b) because sequoia invested in it.
That might be what the initial reasons were. But after Youtube won the eyeballs, Google paid a market rate for network effects and eyeballs to monetize at 1000x their initial valuation estimate.
Also, Sequoia's funding meant that Youtube would continue to grow exponentially and stay ahead of Google Videos. So it's true that SV VCs are incestuaous across boards, but their funding also in reality builds out competitors.
Similar situations are when Microsoft also chased Hotmail and Facebook as they climbed in value, far greater than MS' initial valuations and offers.
Ballmer actually tried to motivate Zuck by saying he could buy a private jet if he took MS' offer. It's one of the most Ballmer things I've ever heard. The second-most is when he said he'd stay on the board for a year but bought a sports team instead - taking his toys and going home.
And as for the 7% I'd say you might get that back with more funding for less equity if you're already one of the larger companies by demo day, lots of investors will throw money at you.