50 people should cost ~$50 million, if it's a very strict talent acquisition, maybe $200 if they're really good. I think as well that there is some hard IP involved, or that they were close enough to a breakthrough for there to be hard IP.
It looks to me like Google really wants to build a monopoly on the best AI people in the world, and is willing to pay out the nose to do it. Given that we're starting to get to the point where AI is going to be useful in a lot of fields, I think it's actually a really good strategy. No one competent out there to build a good competitor to completely autonomous self-driving cars at another company, for example, which will give Google a de facto monopoly on the tech behind something that almost everyone is going to want in their cars asap.
Not to mention the enormous number of innovations they'll likely be able to churn out. Hopefully it's like an AI focused PARC, but with a competent tech company at the helm :-)
And the update to the article says they were competing with Google, Facebook, Baidu... could be google was getting rid of the competition for talent; and gaining ability to attract more talent.
Though if they're expected to do wonderful things, and they've been doing things for years... it seems a certainty that they have already done some of those wonderful things. And hence have something concrete worth acquiring. Which would explain the valuation.
400 millions for a 3 person startup that don't even have a proper web-site and is not in wikipedia seems crazy. But then again Google knows a little more about future value than me.
I think you're mixing up two types of acquisitions here.
There is a difference between Snapchat being worth $3 billion and Nest being worth $3 billion. The former gets the valuation based on users, the latter on talent and intellectual property.
Ditto here: $400 million is not buying you users, it's buying you raw talent and IP. Users can go off to another service in a blink of an eye - IP can't (talent can, but you can often structure the deal so that it won't for some time).
This could still be a terrible deal (I'm sure there are some people at Google still a little sore over Motorola, where the IP was valued far more than it ended up being worth), but for very different reasons.
