With YouTube, Google Takes Aim At Video Ads

A day after Google bought their company, YouTube co-founders Chad Hurley and Steve Chen did something new: They posted a video on their site. At one point in the amateurish minute-and-a-half video, the 29-year-old Hurley exuberantly explains, “The two kings have gotten together,” causing the newly minted multimillionaires to crack up.

But Google hopes Hurley’s dead-on about the deal, which it sees marrying its mastery of text-based Internet to the new emperor of Web video serving 100 million streams a day. The union amounts to a $1.65 billion bet by Google that YouTube can help transport its hyper-targeted search ad model to the evolving community-powered broadband world.

But the question for many agencies and advertisers is, how?

While Google and YouTube reps have said it’s too early to talk about ad plans—and Google CEO Eric Schmidt and Hurley were coy about advertising during a conference call last week—analysts and agency executives envision a new ad system that would use sophisticated targeting techniques to create ad messages users will want to watch, rather than the interruptive spots used by most sites.

One such method would employ You-Tube’s user-created “tagging” organization system with Google’s targeting capabilities. YouTube users upload videos with tags—a series of words that describe the content—enabling viewers to find other like-minded videos. In effect, said Mi-chael Koziol, evp for North America at Nurun/Ant Farm Interactive, an Atlanta digital agency, this creates a readymade way for pairing videos with relevant ad content. Combined with Google’s Ad-Words ad platform, such a system could choose from a vast pool of video spots for one relevant to the viewer.

In earlier interviews with Adweek, Hurley hinted at YouTube implementing such a system. An example he gave last January: A viewer watching a video about Mexico would be served a sponsored video option for vacation packages to Cancun. “We’ll be able to present really relevant advertising that benefits the user experience,” he said.

Another possible route to relevant video ads is through increased content filtering, which would give YouTube users video choices based on their prior site activity, ratings and stated preferences. “That kind of personalization will drive a much better and effective advertising model,” said Steve Johnson, CEO of ChoiceStream, a Cambridge, Mass., company that makes recommendation systems.

Yet some say tag-based and personalization systems would be hard to implement, pointing out that YouTube’s tags are haphazardly used and personalization could be deemed a privacy intrusion by users. Additionally, only a small percentage of the 100 million videos served daily by YouTube are content advertisers would want to be associated with, noted Greg Verdino, head of emerging channels at Digitas. And even then, standard placements, whether text or video in social media like YouTube, do little to tap into their community potential, he added.

YouTube so far has shunned the most common form of video advertising, in-stream spots that run before content. Asked about adding those, Hurley demurred, saying only YouTube, which will remain independent under Goo-gle’s ownership, was open to exploring alternatives—which was not the outright opposition to pre-roll he has given in the past.

Nate Elliott, an analyst with JupiterResearch, believes that given Google’s deep pockets, putting video ads on YouTube might be a low priority. “I think this will retard the development of in-stream advertising,” he said.

While that may be true for user-generated content, Randy Kilgore, chief revenue officer for Tremor Networks, a New York-based video ad network, sees YouTube offering in-stream spots for professional video run via deals with established media companies, like the one CBS made with YouTube last week. Google has yet to run pre-roll ads, but it plans to experiment with more in-stream advertising in the coming months, according to company executives.

“A lot of issues for content sites is they’re constrained by their video inventory,” Kilgore said. “There’s more money chasing less [ad] inventory out there so far.”

Rick Corteville, executive director of media at Omnicom Group’s Organic, which has advertised on YouTube for 20th Century Fox, welcomes new video advertising models. Pre-roll video ads, currently driving the market, often create a poor user experience in his estimation. “Users consume video in chunks,” he said. “With the inability to frequency cap, oftentimes you’re exposed to the same spot over and over again.”

While its acquisition of YouTube holds great promise, Google’s forays into video have disappointed many observers. Google Video, which has combined a YouTube-like functionality with a store for premium content, is an also-ran, while its click-to-play video ads on its AdSense network are an afterthought for brand advertisers. “Up until now, Google’s video strategy has been lacking,” said Verdino

These shortcomings are obscured by Google’s booming search-advertising business, which is on track to generate nearly all of the $10 billion in revenue analysts expect it will produce this year. Thanks to its strength in text ads, industry analysts say Google is indeed under little pressure to put more advertising on YouTube, which only last month began experimenting with user-initiated video ads. “What’s going to be critical for Google is how they grow [YouTube’s] community [without] alienating” it, said Corteville.

Despite the challenges, Google is confident it can turn YouTube’s 72 million monthly visitors into a valuable audience for advertisers. Schmidt said the deal marks “the beginning of the Internet video revolution.” Hurley and Chen’s YouTube video offered proof of the potential: It was viewed over 1.5 million times in two days.