The Deal It’s been two years since search-engine powerhouse Google scooped up the biggest inventory of online videos by buying the fast-growing YouTube for $1.65 billion in stock. The deal certainly seemed expensive, given YouTube’s lack of profit, but the site was hosting more than 100 million user-generated video streams a day. Google salivated at the thought of selling ads against them.

The Aftermath Five months later, Google was swimming in lawsuits, as aggrieved content owners rushed to sue YouTube’s wealthy new sugar daddy for hosting their copyrighted materials. Viacom is seeking $1 billion, charging that YouTube was home to 160,000 of its clips. (The case is pending.) And a new rival may prove more attractive to advertisers: Hulu, owned by NBC Universal and News Corp., streams network programming and Hollywood movies rather than unpredictable user-generated clips. Google’s disappointing ad sales have stunted YouTube’s growth, and Google hasn’t created a profitable model—the “Holy Grail,” as C.E.O. Eric Schmidt calls it. This year, observers have said YouTube is projected to bring in $200 million, below Google’s expectations.

The Bottom Line Google’s buy has hardly been a bust. YouTube streams nearly 35 percent of all online videos, compared with the 6.4 percent of its nearest rival, Fox Interactive (which owns MySpace). That’s comparable with Google’s lead in search share over its nearest competitor, Yahoo. Citigroup analyst Mark Mahaney says YouTube’s earnings could reach $500 million in 2009, suggesting that its sticker price wasn’t out of whack. Analysts indicate that YouTube has more potential for growth than rival CNET Networks, which CBS bought in May for $1.8 billion.