Google (nasdaq: GOOG - news - people ) drew sneers when it paid $1.65 billion for YouTube in November 2006. Only 63 people worked at this little video distributor in San Bruno, Calif. It had minimal revenue but more clips, bigger buzz and a better user experience than Google.  Sneer no more. YouTube is bigger than ever. The Google people are taking over the place, and they've found the buttons on the cash register--vindication for YouTube's original crew, especially founders Chad Hurley and Steve Chen. Or, rather, partial vindication, since the original managers have been largely replaced by Google apparatchiks.  The three-year-old YouTube site probably crossed a billion views per day worldwide a few months ago, exceeding even the lofty expectations by Google when it made the acquisition. (YouTube will only confirm it does hundreds of millions of views per day.) Thirty-eight percent of the video streamed on the Web now comes from YouTube, according to ComScore (nasdaq: SCOR - news - people ). No other player has more than 4%. Google owns the biggest television station on the planet. It will upload 600 years' worth of video this year.  "A studio declining to do business with YouTube would be like a cereal maker not dealing with Wal-Mart (nyse: WMT - news - people )," says Bobby Tulsiani, a JupiterResearch analyst.  Google doesn't share numbers, but it appears that YouTube will generate $200 million this year and maybe $350 million the next. It's a mere 1% of Google's sales, but up from a minuscule amount last year. In YouTube's early days the main objective was to get eyeballs. Now it's to get ads. Web video ad spending will climb from $775 million last year to $1.35 billion this year, estimates Emarketer.  "There are lots of ways we can cause commerce," says Jordan Hoffner, who came from Google's own video unit to run content partnerships at YouTube.  After the billion-dollar marriage, Google unleashed engineers on YouTube, bringing to the separate campus both technical smarts and Google arrogance. YouTube had soundly beaten Google at the video game, and now it was Google's turn to put its stamp on things. Jobs were shuffled around. Not surprisingly, some original staffers were miffed.  But Google brought global scale (YouTube launched in 17 new countries in less than a year with few new hires) and dexterity with the flood of data YouTube was spewing. Google grows by making the Web bigger and putting ads in all the new places. It's doing that at YouTube, with a few twists. An ad on the YouTube home page, something Chad Hurley experimented with before Google bought YouTube, now costs $175,000 a day, plus a commitment to spend $50,000 more in ads on Google or YouTube.  The vast majority of YouTube's library is still an attention-sapping farrago such as babies laughing and dogs splashing in wading pools. That stuff cannot attract advertising without putting YouTube on the wrong side of copyright law. Pricing for display advertising next to user-generated content has collapsed. Rates on sites such as Facebook, MySpace and YouTube have fallen 45% since February, to 18 cents per thousand page views, according to digital analytics outfit PubMatic. Most of the momentum now, says Chris B. Allen, director of video innovation at media buyer Starcom (other-otc: SCME.PK - news - people ), is for ads within full episodes run on the TV networks' sites, such as NBC and Fox's Hulu, ABC.com and CBS.com. It's a format that advertisers understand.  That's why YouTube is pushing studios and networks for professionally produced content like movie trailers and TV clips. It also offers them branded channels, with customized backgrounds and well-selected video. Hundreds of channels are sold to advertisers such as Nestlé, Hanes, 3M, Procter & Gamble (nyse: PG - news - people ) and Hewlett-Packard (nyse: HPQ - news - people ). These go for $200,000 apiece. Last December YouTube opened the program up to individuals, picking up a few thousand more places to run ads. MySpaceTV is building a similar branded arena where professionals can build channels with ads tucked in before, during or after their films roll.  YouTube has done a lot of experimenting with ad formats and found some surprises. Pre-roll video ads prior to the main video cause the audience to click away up to 70% of the time. Better: short banners that pop up from the bottom of the video window. The NBA channel runs rollover Patrón tequila ads that turn into a video how-to for making margaritas. "It's finally a way that advertisers can leverage the massive amount of video streams without the fear of being next to the soccer kid getting kicked in the nuts," says Davis Brewer, lead strategist for emerging channels for media planning firm Spark Communications. People click on those rollover ads 8 times as often as on standard display ads next to the video. The rollover ads are most effective if they appear 15 seconds into the video. Any earlier and people get turned off. When the rollover is run in tandem with a display ad next to the video box, the chance of someone clicking can be 46 times as good.  In March Google rolled out an analytic tool for users and advertisers called Insight that shows a video's daily traffic and demographic stats inside an interactive window copied from Google's stock quote pages. A dynamic map shows creators where their work is popular over time, so a movie studio planning a film opening can decide where to deploy its marketing budget. A rock band can plan its next tour route based on where the fans of its videos live. "They can't believe the data we have," says Hoffner.  One of Google's first tasks on taking over was to contend with accusations of copyright infringement (a suit by Viacom (nyse: VIA - news - people ) is pending in federal court in New York). Google recently put the finishing touches on a fingerprinting system that can spot infringing videos. Instead of just pulling the video, though, Google gives copyright owners the option of placing ads and getting revenue. "The technology is impressive," says Jacques Natz, director of digital media content at Hearst-Argyle Television (nyse: HTV - news - people ).  With the tracking knowledge, YouTube may also offer a personalized home page and recommendations of what to watch, says Hunter Walk, head of product management and another Google transplant. "This channel won't just be YouTube," he says. "It will travel with you over the Internet."  Chad Hurley is still YouTube's guiding spirit, but a handful of Google guys now run much of the business operations. Outsiders speculate that a large number of the pre-Google hires will decamp as their shares vest over the next 18 months. The two founders will not be suffering. They each own $400 million in Google stock.  Subscribe to Forbes and Save. Click Here.
Google is turning YouTube into its own kind of data gold mine. So what if a few founding employees wind up in the dust?