I have a hard time believing that their website was more popular than YouTube. I remember using loads of different video streaming services before YouTube was bought by Google (e.g. Vimeo, Google Videos, etc) and I've never heard of livevideo. Also, Google Videos was Google's own YouTube competitor from before they bought YouTube, which arguably was anti-competitive because it was much easier to search for Google Vid…
YouTube was a simply better product. As was Facebook compared to mySpace.
The innovative features weren't the right ones. YouTube may not have had them but ultimately in the market today we haven't got those features that seemed such a good idea at the time. Just because you can do clever stuff, e.g. showing multiple streams, doesn't mean that is what people want.
The content was better on YouTube unless you really did want porn. It is not a problem Google paying people to do content for their platform in exclusive deals. They had pockets deep enough to do such things and this investment has paid off.
Sure the startup with $50 million isn't going to be able to just sign up all of the big names but they also were not going to be able to pay as well as Google when it came to monetisation since they were going with adSense. Had they developed something special when it came to ad sales then they could have been on to something.
Then in the search results there is no reason to believe Google were doing anything shady. The shadiest part could be the way Youtube was built for SEO. Every developer wants good SEO so it is only natural to try and excel in this area. Within YouTube they potentially had a better idea of how the Google search engine works so they could have written their front end to specifically game the system. I doubt they did that to a level beyond what outside developers can achieve.