The two companies will continue to operate independently, Google said as it announced the news on Monday.

The success of the YouTube acquisition will, however, depend on embedding video advertising into the clips that millions of people hooked to computers watch everyday. YouTube has been reluctant to include advertising within clips for fear of alienating users, but they said they are open to experimenting.

YouTube will retain much of its identity and keep its name and its office in San Bruno, 25 miles from Google's headquarters in Mountain View. One of YouTube's founders, Chad Hurley, said his company liked its independence, adding that "by working with Google, that's still the case."

Founded in February 2005, YouTube had been at the forefront of an internet resurgence known as Web 2.0 and was coveted by almost all major media and technology companies seeking to tap into a new generation of consumers hooked to online short videos.

YouTube, a website started by three youngsters - Chad Hurley, 29, and Steven Chen, 28, and Jawed Karim (who left the company to study at Stanford) - some 21 months ago, is yet to count its first-year profit, but the purchase price of more than a billion has instantly turned is 60-odd employees into millionaires.

YouTube's founders, who rebuffed a series of other overtures, decided to lunch with Google's co-founder, Larry Page, and its chief executive, Eric Schmidt. The Google executives threw in an offer of $1.6 billion and autonomy to continue running the business, and that clicked.

YouTube has made a number of deals with content providers, including one with CBS, many of its users have uploaded millions of copyrighted clips, making the acquisition a potential legal minefield for Google.

Analysts compare YouTube with Napster, which had to close following a series of lawsuits. The company, however, says it is different because it removes content when a copyright holder points out a violation.

It points out, for instance, that Universal Music Group has a distribution deal with YouTube that protects the rights of the music firm's artists. Similarly, it says it has signed an agreement with CBS to offer short-form video programming, including news, sport and entertainment on YouTube. As part of the deal, the companies will share revenue from advertising sponsorship of CBS Videos.

Google has its own distribution deals with Sony BMG and Warner Music to offer music videos. The Google deals should enable internet users in the US to view music videos, artist interviews, and other footage from the two firms on Google video for free from this month.

Google has a current market value of $132 billion and can clearly afford to take a gamble with YouTube although the high valuation and purchase price bring in comparisons of the pre-bubble era dot com valuations.