Google eclipses its rivals once again with YouTube acquisition

Google's headline-grabbing acquisition of online video pioneer YouTube represented another page in a script that is becoming depressingly familiar for all the rivals that are continually being beaten to the punch by the Internet's search leader.

Photo: Google eclipses its rivals once again with YouTube acquisition

Google eclipses its rivals once again with YouTube acquisition

Perhaps no Google competitor is more weary of the story line than Yahoo Inc. an Internet icon battling perceptions that it has lost its competitive edge, even as it continues to attract the largest audience on the Web.

Google's $1.65 billion (Ђ1.32 billion) deal to buy YouTube Inc., announced Monday, is just the latest flexion of the Mountain View, California-based company's muscle.

During the summer, Google formed an advertising alliance with News Corp.'s MySpace.com, a social-networking site that is challenging Yahoo as the Internet's most viewed site. Just as important, Google has continued to widen its lead in the lucrative search market the main reason investors think the company is worth $130 billion (Ђ103.68 billion) after just eight years in business.

Meanwhile, Yahoo delayed a highly anticipated improvement to its advertising network and missed analysts' third-quarter revenue targets. Those disappointments have contributed to a 38 percent decline in Yahoo's stock price so far this year, wiping out $22 billion (Ђ17.55 billion) in shareholder wealth.

Yahoo shares fell 56 cents Tuesday to close at $24.47 on the Nasdaq Stock Market, where Google Inc. shares also declined $2.35 to finish at $426.65. In contrast to Yahoo, though, Google's stock price has edged up by 3 percent so far this year.

"It has been an amazing contrast," said Standard & Poor's analyst Scott Kessler. "Google seems to be out-executing and out-innovating Yahoo."

Contacted Tuesday, Yahoo declined to comment about Google's YouTube acquisition or its strategic response.

Yahoo Chairman Terry Semel has repeatedly described the Sunnyvale, California-based company as being well positioned to capitalize on the entertainment and advertising industries' continuing migration to the Internet. To be sure, Yahoo is making plenty of money a $324 million (Ђ258 million) profit on revenue of $3.1 billion (Ђ2.47 billion) through the first half of this year, reports AP.

But Internet observers are convinced that Yahoo will have to do something dramatic to get Wall Street and Web surfers excited about the company again.

"I think they will be in the penalty box" until next year, said Ellen Siminoff, a former Yahoo executive who now runs Efficient Frontier, a search marketing firm in Mountain View. "This (YouTube) deal will probably encourage Yahoo to be more aggressive than it has been in the past."

The conventional thinking is that Yahoo will step up its efforts to buy Facebook.com, the second most popular social-networking site behind MySpace.