This is a horrible idea.
YouTube is a collection of uploaded content. They have no interesting technology. All Google would be buying is YouTube's existing content and user base.
Google has never been about owning content and users before. Google makes it easier to find other people's content. Google's core strength is in helping people find and discover information, not in controlling information and people.
This merger would be classic deworsification. If it happens, GooTube will be exactly what Microsoft and Yahoo have been waiting for, a lovely little distraction for Google.
See also my previous post, "The problem with YouTube".
Update: On this note, Danny Sullivan points out an LA Times article that said, "Google admitted this year that its internal audits discovered that the company had been spending too much time on new services to the detriment of its core search engine."
Update: Mark Cuban calls Google buying YouTube "crazy" and "moronic" in his post, "Some thoughts on YouTube and Google". [via Don Dodge]
Update: It's official, Google bought YouTube. All hail GooTube.
Update: Om Malik says Google is a loser in this because he thinks "this is Compaq-DEC, Skype-eBay kind of a deal for them in the long run." John Battelle notes that "this marks Google's first significant out of brand acquisition, the company's first true brand-management challenge."
Update: When we look back at this merger in a few years, I suspect it will be seen as when Google jumped the shark. It is the day Google loses its focus on technology and begins a stumbling effort at trying to become a media company.
Update: Om Malik adds, "It is the distraction factor ... The copyright issues and all those other problems are going to strain google where it is weakest - management and control."
Update: Microsoft CEO Steve Ballmer says, "Right now, there's no business model for YouTube that would justify $1.6 billion. And what about the rights holders? At the end of the day, a lot of the content that's up there is owned by somebody else. The truth is what Google is doing now is transferring the wealth out of the hands of rights holders into Google." [via Todd Bishop]
Update: Ephraim Schwartz at InfoWorld says of the Google-YouTube deal:
YouTube gets something like 100 million page views per day. Does it matter that 99 percent of them are a waste of time? That these homemade videos have no redeeming quality? Not in the slightest. To whom should it matter?It should matter to Google. What is Google's mission again?
Google's mission is to organize the world's information and make it universally accessible and useful.If 99% of YouTube page views are a waste of time with no redeeming quality, the YouTube deal is a violation of Google's mission. YouTube content is not useful.
Update: No matter what you think of the YouTube deal, you have to admit that this part of it just reeks:
YouTube's deals with Universal and Sony BMG came hours before it announced its deal with Google ... the music companies rushed to complete the deal ahead of the YouTube deal, in part so that it could benefit in the jump in YouTube's value.Update: "YouTube purges 30,000 copyright files", the first of many of these announcements we will see, I am sure.
Update: Mark Cuban posts some rumors about the details of the Google-YouTube deal that, if true, make Google's biz dev folks look pretty darn evil. Mike at TechDirt sums it up: "The music labels effectively taking a bribe to cause trouble for Google/YouTube video competitors, ignoring YouTube to let it grow for a while, and pocketing all of the money without giving it back to the artists they supposedly represent ... This whole thing reads pretty sleazy."
Update: The FT reports that "Google is engaged in a frantic round of negotiations ... [to] ward off a potentially crippling round of lawsuits ... offering tens of millions of dollars in upfront payments for the right to broadcast their video content legally on YouTube .... [and even] offering one $100m to license its content over a two-year period." [via Paul Kedrosky]
Update: Google closed the acquisition of YouTube today (Nov 13). Let the lawsuits begin.
Update: Four months later, SeekingAlpha reports, "Despite months of negotiations, Google has been unable to secure a deal to post content from any major media company on YouTube."
Update: Liz Gannes at GigaOm reports that "Google is having quite a bit of trouble ... figuring out how to monetize YouTube and make it legit."
Update: Five months later, Viacom sues GooTube for (insert Austin Powers voice here) one billion dollars. While much of the commentary I have seen seems to be favorable toward Google, I am more inclined toward the opinions of Don Dodge and Mark Cuban who argue that Viacom cannot lose by fighting hard against Google.
Update: About two years later, not only is YouTube failing to make money ("YouTube is still finding it hard to make money ... revenues at around $90 million for 2008"  and expenses are high), but also the lawsuits are creating nasty problems for Google as they creep through the courts (e.g. "Google Told to Turn Over User Data of YouTube" ).
All of this comes on top of new revelations from Chad Hurley that YouTube needed a Google bail-out at the time of the acquisition ("[Another VC round] would have been hard, we would have been even more threatening to [others] ... and it would have been hard for us to operate in an efficient way. So we decided Google was going to be our answer ... I don't really think [continuing growth] would have been possible without the help of Google." ).
Update: Four years later, Nick Bilton at the New York Times writes, "Although Google's purchase of YouTube hasn't paid of financially, it has clearly made Google a giant in the world of online video, displaying more than 13 billion videos during the month of April." So, exactly as predicted, the purchase hasn't paid off financially, but has made Google a content provider.
Update: Nearly five years later, YouTube still is only "close to being profitable", still not yet profitable. I doubt that is what Google had in mind when it acquired YouTube.