Now Playing on YouTube: Ads

(page 2 of 2)

The new ads mark the next evolution of YouTube and, in some ways, user-generated video-sharing sites in general. At first, YouTube, like many other startup video sites that let users post their own content, focused on growing audiences and content and had only a vague idea of how an ad-supported business model would work. As the sites began streaming millions of videos a day, companies such as Time Warner's (TWX) AOL began placing short commercial-like ads before the requested content—a format known as "pre-roll" advertising (see BusinessWeek, 8/7/06, "AOL Video: Close but No TiVo"). Other sites such as Revver attached ads at the end of videos.

Though pre-roll and so-called post-roll ads grabbed some marketer attention, video sites have been working to find an alternative that both users and advertisers would like better. "Users today expect control over their environment and pre-roll is, by its nature, disruptive and creates a negative user experience," says Matt Sanchez, chief executive and co-founder of Web video company VideoEgg.

The Least Intrusive Path to Ad Dollars

Early on in YouTube's existence, founders Chad Hurley and Steve Chen pledged to avoid the pre-roll format altogether. Instead they featured "banner advertisements," poster-like ads that run in a fixed place on a Web page. They also enabled marketers to build "branded channels" on YouTube where users could watch their content.

Google reckons the embedded graphic will be the least intrusive form of ads attached to a video. "We have been figuring out ways we can deliver ads to YouTube users that would be nonintrusive and could take advantage of the hundreds of millions of streams daily on YouTube," says Google's Naughton. Before YouTube's announcement, graphic overlays were gaining traction as the Web way to advertise on video. Yahoo! (YHOO) and VideoEgg each use such ads on their streaming video content. "The market is now in a place where there is a general agreement that pre-roll isn't an effective way to advertise in these environments," says Sanchez. "Beyond that, people are experimenting with a lot of different options."

Even if the translucent ads are less intrusive, they're still ads. And YouTube's audience, which has long grown used to seeing content without any kind of message in their video stream, is unlikely to welcome the video version of pop-ups. More important, advertisers are similarly unlikely to embrace user-generated video simply because Google has a new advertising format.

Sure, they will want to associate their brands with studio-produced music videos and other major media content that they trust. They may even vie to put ads next to certain semiprofessional video creators such as Lonelygirl15. But they will likely remain reluctant to associate their brands with a piece of content a computer program has deemed free of copyrighted material and safe for sponsors. "This form seems like it will be a useful experiment because it gets around the problems with pre-roll," says eMarketer senior analyst David Hallerman. "But there are still not going to be many ads attached to user-generated content."

That's a risk Google is willing to take, reaping the benefits with every ad-laden video that gets watched.

Holahan is a writer for BusinessWeek.com in New York.