Google's cornerstone is its advertising business.  For all the popularity of its search engine, maps, email, and documents services, it’s advertising that pays the bills.  Fortunately for Google, it has one amazingly strong cornerstone.

When Google first acquired YouTube for $1.65B USD, the key question was how to make it profitable.  Google executives still struggle with this challenge to some extent as the logistics are rather appalling -- 10 hours of content are uploaded for every hour in the real world.

However, according to analyst reports, Google has finally found a way to leverage YouTube's massive traffic to yield a massive profit -- video advertising.  According to Citigroup Investment Research's Mark Mahaney between YouTube, Google Videos, Images, Maps, and Finance the site will make over $1B USD on display advertisements in 2009.

Mahaney goes on to boldly predict that Google will make $500M USD from video advertisements on YouTube alone.  He pegs Google Images, Maps, Video, and Finances will help contribute another $265M USD in revenue.  Finally, he believes that Google's acquisition, DoubleClick will bring in $280M USD more.

Citi has released broader estimates that by 2010, in the U.S. alone display ads will bring in revenues of $11.2B USD.  Surprisingly, the lucrative display advertising is one thing that Yahoo is currently doing well on.  It currently controls a leading 20 percent of the market, while Google only holds 5 percent.  However analysts predict that this balance will shift dramatically as Google ramps up its YouTube advertising efforts, with graphics heavy advertisements such overlays.

Using MySpace as a basis for his estimates, Mahaney analyzed the average CPM (cost per thousand impressions) and found it to be about $1.13 on MySpace.  Given the 483 billion page views this year, and projecting a growth of 50 percent for 2009, gives 725 billion page views, which when monetized would equate to $820M USD in gross revenue.

As growth isn't free, Mahaney applied a 40 percent traffic acquisition cost rate to the gross profit to come to the final figure.  Figures for the other Google sites were similarly reached.  The complete picture painted is of a much more financially sound Google in years to come.

With Google buying data centers for cloud computing and its SAAS (software as a service) at a frantic pace, Google already looks to be in good shape.  With the rosy outlook for Google's ad business, it appears, if the analysts' predictions hold true, that happy times are ahead for the Silicon Valley search giant.