YouTube on Thursday said it has begun testing free and paid video downloads, a move that promises to help Google monetize its vast inventory of long-tail content that isn't appealing to advertisers.

Last August, Google CEO Eric Schmidt said his company was still figuring out how to make money with YouTube. By October, Google started to include e-commerce links with YouTube partner videos so that viewers could purchase related products.

Now viewers can purchase the actual videos as downloadable files.

YouTube is allowing a select group of partners to offer their videos as free downloads or as paid downloads through Google Checkout. Its partners have the ability to set prices -- a freedom iTunes content providers desperately want -- and to choose the license they want to apply to their videos.

YouTube has created a new My Purchases tab under the My Videos menu to help users keep track of videos that they've downloaded.

Free video downloads are now available from Stanford, Duke, UC Berkeley, UCLA, and UCTV. YouTube partners Khan Academy, Household Hacker, and Pogobat are selling videos through a link that says, "Download this video ($0.99)," just below the left side of videos in their archives.

Downloaded videos are in the MP4 format, which can easily be copied. This is likely to scare away major content providers. But in the absence of big-budget entertainment content, a healthy market for educational videos appears to be taking shape.

For YouTube users seeking to download content that hasn't yet been made available for download, there are already a large number of Web sites, like Vixy.net and Keepvid.com, that allow users to do just that. YouTube videos also can be downloaded using a browser bookmark.

How are other companies trying to make money off of YouTube? InformationWeek has published an independent analysis of this topic. Download the report here (registration required).