Sometimes I wonder what people in these big-brain companies are thinking. Ay yi yi.
It’s hard to remember now, but YouTube made watching web videos not be an exercise in pain. I know I’m speaking with hindsight here but kind of an obvious value prop.
YouTube's early success I suspect had a lot more to do with them paying fast and loose with enforcing IP rules. It wasn't until a bit after the Google acquisition that they started getting more serious about it.
EDIT: also remember this is an era when Google was actually doing quite well shipping rather geeky and minimalistic invented-by-engineer consumer-facing things. There was no reason to assume they wouldn't do well with Google Video. They had just recently had a lot of success with Gmail. Gchat was a thing. Their calendar was good. They were making some ok stuff.