1. Brand and scale. If a company buys a startup with a promising product that they can quickly sell to a large portion of their customers, they're willing to g

1. Brand and scale. If a company buys a startup with a promising product that they can quickly sell to a large portion of their customers, they're willing to give up a portion of that future revenue. It may not be at all tied to past performance. 2. Talent Facebook payed a premium for FriendFeed because they wanted their team to work on the Facebook platform. This team has developed more than $50 million in new value for Facebook. 3. To keep a competitor from having the advantage. Google paid $1.5 billion for YouTube. They've lost money on owning it, but in the process kept their biggest competitors from controlling an asset that drives an enormous portion of all video traffic on the web. You'll see companies buy up companies they're not really interested in just to keep someone else from having them. Powerset was bought for $100 million by Microsoft because if they had developed some interesting or successful search technology, they couldn't chance letting Google have it.