ASq: Microsoft, Yahoo Let Users Choose Ads

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rare: high-quality online video ads

Not everyone is convinced that allowing users to choose ads will benefit the industry. "If you only watch what you like, then how will it broaden your appeal?" says Richard Wheaton, managing director at Ogilvy & Mather's Neo digital media agency, which works with such clients as Cisco Systems (CSCO), Eastman Kodak (EK), IBM (IBM), and American Express (AXP) "Everybody isn't happy to be advertised at, but the more iPads (AAPL) I see, the more I want an iPad." Wheaton says there's a "real shortage" of quality video ads online because they are very expensive to shoot.

For now, most online video ads are nothing more than TV commercials posted on the Internet, says David Hallerman, an advertising analyst at eMarketer. "The whole online video space is still experimental for most advertisers and websites," he says. "It definitely will be growing, though search still remains No.1 in terms of dollars spent and will remain dominant." An estimated 9 percent of ads online are "touched" by a user's mouse for an average 43 seconds, Donaldson says. The touch time grows by 2 percent to 3 percent if the ad is a video.

Blinkx (BLNX:LN), an online video-search operator spun off by Autonomy (AU/:LN), is among the companies that stand to benefit from the expected surge in video ads, says Chief Executive Officer Suranga Chandratillake. The site, which gets 99 percent of its revenue from advertising and was rated by ComScore (SCOR) as the fastest-growing video site after Facebook, targets consumers with ads using software that analyzes words and visual signs. Users can even select the endings of certain video ads.

300 million Chinese view online video

Samsung Electronics (005930:KS) is using interactive ads in one of its campaigns for 3D TV. The company took a projection of the late-19th-century Beurs van Berlage building in Amsterdam and pasted it into a YouTube page. The building cracks, butterflies emerge from it, and users are instructed to click on as many butterflies as they can to win a free TV. "Video is emotive," Chandratillake says. "Search is a terrible place to do branded advertising. When you think of your favorite ads, they are never Google search ads."

There are 150 million online video watchers in the U.S. and double that in China, says Sean Finnegan, chief digital officer at Starcom MediaVest Group, a media buying and communications agency owned by Publicis. "The majority of brands we represent plan to increase their allocation to online video this year and next," he says.

Starcom MediaVest was part of a research group put together to study the ASq model by Publicis's Vivaki, along with Hulu, Microsoft, and others that included marketers such as Allstate (ALL), Applebee's International (DIN), and Capital One Financial (COF). Eventually, video ads will become richer as audiences migrate from TV to online. Ads will have social and commercial elements and target the right person at the right time, says Jonathan Nelson, Omnicom Group (OMC)'s digital chief. "Video ads and interactive ads have lineage in TV; extending that online is natural," he says.

Schweizer is a reporter for Bloomberg News.

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