It makes perfect sense that Google peers with downstream ISPs.
However, I think Mr. Turner's analysis is wrong. It is in the interest of the Tier 1s to continue to gouge Google. YouTube pushes out way more bytes out than it pulls in... even including video uploads, client-made HTTP GETs, and TCP ACKs. This asymmetry pokes holes in the presented argument (assuming that those in a peering agreement measure bandwidth in bytes per second and not packets per second, and that both parties strive for balanced bandwidth usage).
If Google were to route all traffic through a single Tier 1... the latter would be completely screwed. The ISP would constantly have to push all these YouTube bytes out to all the other Tier 1s, and it's all the other networks that get the leverage.
The only leverage for this clever Tier 1 is in exploiting their position as the exclusive route into Google. They may even be tempted to extort the other networks... pay lots of money or your user don't get access to Google. This would barely work. All the remaining Tier 1s would simply stop by the Googleplex to say "hi guys, here's a bunch of half-duplex links. We are going to push bytes to you but not take any from you. Ciao". Google, of course, would agree. This lone Tier 1 is effectively bypassed, and it still has to find a way to get its massive quantity of upstream traffic into everyone's networks.
A Tier 1 might offer Google a special deal if they feel they are underutilizing their uplinks, and therefore want to push the peering situation back into equilibrium. But, they would definitely put a cap on Google's bandwidth usage, so as to guarantee that things don't swing too far the other way.
It definitely makes sense for Google to peer with the downstream guys (the Tier 2s and 3s). This reduces costs for both parties. The ISP doesn't have to pay for upstream transit to route to Google, and Google doesn't have to pay for upstream transit to route into the ISP. It's a win-win situation. And, it also improves user experience by decreasing latency, a big priority for Google.
