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Yahoo exec rips Google for overpaying for YouTube

Such a comment from a Yahoo executive is surprising, but this is just part of the long-running debate about whether YouTube makes money.

Someone from Yahoo has accused Google of overpaying for YouTube.

Google CEO Eric Schmidt Elinor Mills/CNET

Oh, the irony.

Steven Mitzenmacher, a Yahoo senior director of corporate development, is skeptical that Google has recouped the $1.65 billion the search company paid in October 2006 to acquire YouTube, the Web's top video-sharing site. According to a story in The Wall Street Journal, Mitzenmacher was speaking on a panel at the Global Technology Symposium in Menlo Park, Calif., on Friday. Also on the panel were execs from LinkedIn, Adobe, and Google.

The paper reported Mitzenmacher was ballyhooing Yahoo's plans for "a very big year" of acquisitions and vowed the company would come out "guns blazing." He offered a sample by taking a shot at a deal that's over four years old. He told conference attendees the price that Google paid for YouTube was "still crazy." Then, it was on.

Google's Neeraj Arora defended his company by saying YouTube had already paid for itself, to which Mitzenmacher responded by whipping out his phone to find comments made by Google CEO Eric Schmidt about how YouTube had yet to turn a profit. One of the longest-running debates in Internet video is whether YouTube is profitable.

But what's humorous about Mitzenmacher's "crazy" statement is that a Yahoo exec would criticize anyone for flubbing the valuation of an acquisition. In 1999, Yahoo paid $5.7 billion to Mark Cuban and the other founders for, an Internet radio service. This is generally regarded as one of the worst acquisitions of the dot-com era. And how about the $3.6 billion Yahoo paid the same year for GeoCities, the Web hosting service? How much did Yahoo get back on that deal?

More recently there was Maven Networks, a Web video distribution service, which Yahoo acquired for a relatively inexpensive $160 million, only to shut it down less than two years later.

In addition, Schmidt has already acknowledged paying a $1 billion premium for YouTube.

"I believe YouTube was worth somewhere around $600 million to $700 million," Schmidt said during a 2009 deposition taken as part of the copyright lawsuit filed against Google by Viacom. Later in the deposition, a copy of which was obtained by CNET, Schmidt explained his reasons for paying the big premium at the time.

"[YouTube] is a company with very little revenue, 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. In the deal dynamics, the price, remember, is not set by my judgment or by financial model or discounted cash flow. It's set by what people are willing to pay. And 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."

Mitzenmacher's comment, however, is relevant. Google never offers a straight answer about whether YouTube is profitable. We may have to wait until the day YouTube generates enough profits to be material to the company, in which case the company would be obligated to report it.