Sure, I see why as a company you don't want user data in your domain.

But if the different domain name gives good protection / isolation, why does Google still use completely different domains for different services with content controlled by them. I cannot believe they are interested in protecting users from data collection.

YouTube was an acquisition that they didn’t rebrand. Google Video was on google.com. gmail.com redirects to mail.google.com, and only email addresses use the gmail domain to avoid appearing to be google employee emails.