• by Tod Sacerdoti , November 22, 2010

Last week, Google announced that its display ad business is now on a $2.5 billion revenue run and its mobile ad business is on a $1 billion run rate.  Google now has a billion dollar business in three major online ad categories -- search, display and mobile. With Hulu announcing $240 million in revenue in 2010, the race is on for the first billion-dollar video ad business.

 To put this in perspective, there are just six companies that sell $1 billion or more of television advertising a year in the U.S. -- ABC, NBC, CBS, FOX, CW and Viacom -- so doing $1 billion in video ad revenue is a big deal. 

So, what does it take to get to $1 billion in online video ad sales?

We can learn a lot from search, display and mobile, because the billion-dollar businesses in each of these categories all share the following four key characteristics: 

1.  Owned and operated property.  You must own and operate a large destination property, and this is consistent across all online mediums.  No independent seller of online ads has grown to over $1 billion in sales.  Portals such as YouTube, Hulu and Yahoo, and broadcasters such as Comcast/NBC, Disney/ABC, CBS and Facebook, are well-positioned on this criterion. 

2.  Network inventory.  You must control a network of inventory off your owned properties, similar to what Overture (Yahoo) did in search, Ad.com (AOL) did in display and Quattro (Apple) did in mobile.  Ad networks like BrightRoll (where I work), content networks like 5min Media (AOL) and app platforms like Facebook are well-positioned on this criterion. 

3.  Media-buying platform.  You must operate a media-buying platform that allows you to scale the number of advertisers and clients you can sell to.  Google has dominated this category to date and operates the leading search platform (Adwords), the leading display platform (AdX) and the leading mobile platform (AdMob).  Legacy platforms like AdCenter and RightMedia, and emerging platforms like AppNexus are well-positioned in this area. 

4.  Global reach.  You must be able to scale technology and sales globally, without requiring a significant local presence in each market.  Many people forget that in their early years, Google, Facebook and AdMob were each selling millions of dollars of ads outside the U.S. despite having tiny staffs internationally.  The global players, Microsoft, Yahoo!, Facebook and Google, are well-positioned in this criterion.

So who will get there first? 

My bet is that the Google will be the first, Facebook will be second and Yahoo will be third.  My reasons are relatively straightforward: these three companies already have some of the key pieces in place, they are laser-focused on automating the online ad ecosystem, and they have the capital to buy any pieces they end up lacking.   

You could make the argument that Hulu should be in the top three, but it has a significant business risk (NBC pulling the content), is pushing a subscription product (which may reduce ad sales), and has a weak business outside the U.S. 

No matter what happens, it is clear the broadcasters are in trouble.  It is incredible to think that the largest sellers of video advertising in the world are unlikely to win the most important new video ad category.  The reality is that their bloated traditional businesses will no doubt paralyze them in this pursuit -- a problem that was so eloquently described by Christopher Wallace in the song "Mo Money, Mo Problems."