Although YouTube was launched less than 18 months ago, it has already become the web’s 10th most popular destination, according to the information firm Alexa. An estimated 100m video clips are viewed from the website every day.

While YouTube has attracted a large audience, it has yet to demonstrate that it can generate profits or even significant revenues. It also faces a wave of litigation from media companies whose content has appeared on the site.

Another problem is the cost of hosting the growing number of video clips. This is estimated to be as much as $1.5m (£800,000) a month — a significant sum for such a young firm.

Google is thought to believe it can cash in on YouTube’s audience thanks to its proven technology for generating profits from web advertising. Running advertisements alongside videos — while more complicated than Google’s traditional search listings — could generate income in a similar way. Google intends to retain the YouTube brand.

The deal, which follows months of negotiations, will underline its financial firepower. However, it also suggests last January’s launch of Google Video — much criticised for its poor organisation — has been a flop.

Google’s purchase would represent another big success for Sequoia Capital, which has invested $11.5m in YouTube. The Silicon Valley venture-capital firm has previously backed Apple, Cisco, Electronic Arts, Oracle, Yahoo and Google itself.

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