YouTube's InVideo Ads: Smart Move, But Far From Final, Say Experts

by Tameka Kee, Aug 23, 2007, 6:00 AM

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After Google's YouTube announced that semi-transparent overlays would be the online video community's ad format of choice, headlines like "My, What A Friendly Ad" and "In-Video Ads - How Do You Define Relevance?" filled the blogosphere.

While insiders and users questioned whether YouTube viewers would tune out in droves, if advertisers would get the bang for their buck, and whether "we really need more push marketing in supposedly interactive environments," agency types, market analysts and online video experts questioned by Online Media Daily agreed on one thing: YouTube's move was a classic Google first step--smart, possibly game-changing, and ready to be tweaked on the fly.

"Overall, it's a smart move," said Joe Laszlo, senior analyst and research director, JupiterResearch. "Google has been looking for ways to generate revenue beyond banner ads, and the YouTube folks have continuously said that running commercials before their videos isn't a good value proposition for the viewers--so they've found a format that will be a good compromise."

According to Laszlo, concerns about whether a glut of InVideo Ad overlays will cause a dramatic drop in users are unfounded, partly because the majority of user-generated videos aren't suitable for brand messages. "Advertisers aren't comfortable putting their brands in front or literally on top of every piece of YouTube content," he said.

And while Google faces shareholder and industry pressure to have the online video community generate revenue, a YouTube with no audience is a property with no value at all. Since Google already has such a strong search advertising business, "it gives them some leeway in terms of revenue expectations for new lines of business," said Laszlo. "They want YouTube to be generating something positive--something to cover the costs of running all the videos--but it doesn't necessarily need to be the main breadwinner."

So while bloggers like Silicon Alley Insider's Henry Blodget sniffed at the conservative estimates for InVideo Ad's earning potential ($8 million for this year, and a possible $200 million five years from now), such numbers may be enough to keep Google content.

According to Kathy Sharpe, CEO of Sharpe Partners, a New York-based independent interactive agency, the numbers YouTube might need to tweak are the CPM (currently the baseline is $20) and the actual measurement of those impressions.

"A $20 cpm is low for online video, but with most video ads you're talking about something full-screen," said Sharpe. "With the overlays, the message is competing with another narrative--and as much as we multitask there's always one task that we focus on more." If advertisers don't find the impressions they're getting are effective, she added, the ad model will fall apart.

Currently, the transmission of the animated overlay (some 15 seconds after a video begins) counts as an impression--but not a click-through to the embedded full-length video ad. Sharpe says that testing how well this works concurrent with the start of both the school year and the broadcast TV season is a risky but calculated move.

"They're doing it in typical Google style--let's go do it and get a strong test, even while all of the traditional media types are watching," she said. "But this is not the final way that YouTube advertising is going to be done three years from now, maybe not even a year from now. They learn faster than any organization on the planet and come up with things that no one else thinks of."

But other online video sites have already pioneered the overlay ad model--such as VideoEgg, whose CMO Troy Young publicly blasted YouTube about hijacking its idea. Still, no other sites have the marketing juggernaut that is Google behind them.

"The 'overlay' video ad model seems to be emerging as the new de facto standard for monetizing online video outside of traditional pre-roll advertising," said Chase Norlin, CEO of Pixsy, an online video and media search platform. "Assuming Google can manage the payouts to content creators and publishers successfully, and assuming solid value is generated for the advertiser, then it's reasonable to believe this could become a significant new revenue stream for Google.

"However, lots of other exciting startups in the space will be competing for the same inventory," he added. "The race is on."

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