With the recent acquisition of You Tube by online giant Google, the question on many of people’s minds is – what exactly did Google get? At first glance, purchasing a money-loosing video-sharing site does not make much sense. The company is estimated to be hemorrhaging about $500 000 a month and its revenue prospects are iffy. Granted, YouTube is hastily experimenting with various advertising-based business models that could enable it to cash-in on its surging popularity. But will any of it pan out?

Some of the ideas floated so far include placing ads before a clip, “branded channels” and “participatory ads” where users can create, rate, and swap the ads they like. Putting ads before video clips would no doubt annoy users. It would also raise serious questions if YouTube didn’t first find a way to split its ad revenue with the community (i.e., the content providers).

What’s worse, Google’s already steep exposure to copyright lawsuits is rocketing off the charts. Most of the 200 or so video sites on the Web today fly under the radar of the Hollywood content police — their revenues are simply too small to justify a lawsuit. Cash rich Google may not be so lucky. So, it’s no surprise that Google set aside $200 million as a contingency.

Some people called Google crazy. But that theory doesn’t hold water—just look at the financials. You Tube was purchased for 3.66 million Google shares. Between the first rumors of the deal and the closing date one week later, Google gained over $2 billion in market capitalization. Since then, Google gained a further $25 billion. In a way, Google got You Tube for free.

You Tube is now signing major content deals, which would not only bring in revenue, it could put Google at the center of a vast new hub of content creation and dissemination. And that, no doubt, is exactly why Google bought YouTube.