There was an awful lot of competition around in those days. see this summary from 2007: http://www.iptvtimes.net/2007/02/list-of-user-generated-video-sites.html. YouTube wasn't the best service, but it was based down the block from Goigle, who had deep pockets from their IPO.
No one will ever know how much money they poured into the business, but it has certainly been an eleven figure sum and probably ten times the $1.65 billion paid to acquire the site in the first place. it is questionable how much real profit the business generates even today since Google do not break down the figures. Needless to say it takes a lot of kit to process the 600 hours of content uploaded onto the site every minute and then to store what amounts to 315 million hours a year, which equates to around 1.5 petabytes of video, most of which will only be viewed by a handful of people.
But the service has clearly become very successful at becoming the default service for video on the Internet ( much to my personal detriment it has to be said), and is a serious player in the ad market.
What it has failed to do is attract any decent mainstream content and Google seems to be walking a very tentative line between being a platform and a publisher and being a studio and a broadcaster.
They have, and continue to sail close to the regulatory wind, but get away with most things by hiding behind DCMA.
But the real threat to the business comes in the form of rival social networks,me specially Facebook, who tired of giving valuable ad space away to their main competitor and have now launched their own video services.
It's interesting to speculate what YouTube will look like in another decade. Will it take on Netflix and Amazon Prime or stick to its UGC roots ? Or continue to try and be all things to all people.
What is interesting are the moves that Google is undertaking in the TV market outside of YouTube; from Chromecast to Android for TV the company is making a big play for the living room.