Yes, Google Video was similar sized to YouTube (maybe), but Google itself was far greater.

If you're bought out, the bigger company that now owns you can put more money behind your product vision and that leads to more employment.

Mergers only happen between 'equals', and in that case the benefit is the two companies can stop fighting each other in the market and 'synergize' by firing all the sales, middle-manages, and customer support that now are unnecessarily overlapped. Do you really need two sales guys to target the same customer now that you're the same company? No.