• by Jesse Chenard , August 28, 2006

Once upon a time, way back when, in an innocent time before snakes on planes, video was a novelty for Web publishers. Seen as a marketing tool to drive awareness for offline properties or products, online video was rarely part of a commerce or advertising solution (read: cost center.)

Enter 2006. No longer is online video a loss leader for Web publishers. It's increasingly a prime revenue source and major opportunity. With opportunity, of course, comes complexity. How do you make an online video effort not only engaging and attractive for end users, but also profitable and successful from a business standpoint?

Step 1: Start with good content. The first ingredient is good content. Without it there isn't much draw and certainly very little revenue. For sites like YouTube, content is entirely composed of user submissions. (I won't touch the whole copyright debate here.)

On the opposite end of the spectrum are content producers. In some cases they are making the content available for syndication but increasingly, are also looking to go directly to consumers with their own Web sites. In between you have the aggregators who get their content from a mix of user-generated and professionally produced sources.

Step 2: Determine your business model. The irony of online video for publishers is that the more successful they are at getting eyeballs, the more expensive it becomes. There are myriad examples of great content that cost someone a lot of money. Jib-Jab's first video cost hundreds of thousands of dollars in streaming costs and bursting fees and, unfortunately, had no business model to recoup those losses.

How are you going to monetize your online video? Do you sell access to the video, or do you sell access to the consumers of the video? If your choice is to sell access to the video, then you have to start looking at DRM solutions, payment processing, fulfillment and customer support. Increasingly, though, publishers are going for the latter business model: allowing access to their consumers via video advertising, sponsorships, companion banners, etc.

Step 3: Ad sales: remember that every stream served with no ad is a lost opportunity for revenue. Assuming that you've chosen advertising as your revenue model, you need to identify where those ad dollars are going to come from. You have a few choices here. The most obvious is to sell the inventory yourself. If you are a large publisher and have the in-house staff to support it, you will probably do very well with this method. But be careful--many large publishers are finding that the months it takes to get a video ad sales team up to speed can be very costly.

If you don't fall into that category, don't despair. There are other options, from working with rep firms to video ad networks. In the banner world, the majority of successful publishers take a mixed approach, with internal ad sales representing the majority of their inventory, but one or more ad networks moving unsold inventory. We see this as the most successful model for online video ad inventory as well.

Step 4: Decide on distribution How are you going to distribute your content? There are basically three choices--and your decision should be guided by your projected volume and uptime requirements:
1. Build out or leverage your own hosting infrastructure for delivery. At lower volumes, this is your most cost-effective solution.
2. Engage a CDN (content delivery network)--at higher volumes, economies of scale kick in and CDNs can handle a lot more technical complexities, including load balancing. Once you're at a point that downtime is costly, this makes a lot more sense.
3. There are full-service shops who will handle the distribution for you, as well as everything else, at a cost.

Step 5: Decide on presentation and delivery The first decision is which video format to use (WM, Flash, QT or Real). The criteria are: target audience, desired reach, quality concerns, security needs and whether you need live or on-demand. More and more publishers are using Flash. It seems to offer the best combination of these factors with the largest user base.

Finally, what technologies will you use for ad insertion? There are many criteria to look for. I'll list a few, but I don't have the room to go into detail. I promise a future column on this topic if you're interested.
1. Do you just want pre-roll and post-roll, or do you think you might need mid-roll as well--the ability to create custom combinations?
2. Will you use multiple ad sales sources?
3. Are you working with an ad network that supplies ads dynamically?
4. What are your distribution requirements? Will it work with your CDN?
5. What are your ad-logic server requirements?
6. Can you skin and customize your player?
7. What are your requirements for companion banners?
8. Does it integrate with your CMS and workflow processes?

As I said before, with opportunity comes complexity. But I hope I've given you some tools to help you know what decisions you need to make and how to begin or improve your existing solution. In the end, you'll find that making money from online video advertising isn't a fantasy.