YouTube Launches Video Ads

Posted by: Rob Hof on August 21

People have been wondering how the popular video sharing site YouTube would make money, even as it has grown to 130 million unique users a months viewing upwards of 3 billion minutes of video. The basic problem is that viewers have grown accustomed to not having to view ads as part of the videos. And the standard today, so-called pre-roll ads which run before the videos start, have proved to be audience killers.

Google, which owns YouTube, has been experimenting with some alternatives, on Google Video as well as on YouTube, and now is launching something that holds the potential to balance the desire of viewers to avoid undue interruptions with the need of advertisers (and YouTube) to make some money from all those eyeballs.

YouTube’s new InVideo ads run as Flash animations overlaid on the bottom of the video window, starting 10 seconds after the video begins. If they’re not clicked on, they disappear after 10 seconds, though Google’s studies indicate that up to 10 times more people click on them than on conventional banner video ads, and fewer than 10% actively close the overlay. Once they click, 75% of viewers watch the whole ad. The video itself is paused while the ad runs.

You can see a couple of examples here and here. The ads will run only with videos that partners such as Warner and some of the more popular amateur producers have approved.

Eileen Naughton, director of media platforms for Google, says the ads will be sold on a cost per impression basis for now, though she says it’s not ruling out eventually charging on a cost per click, like Google’s search ads, or cost per action, which as buying a DVD or other product after viewing the ad. The ads can be targeted by video genre, demographics, geography, and time of day. “It will put a burden to some degree on agencies and marketers to create flash animation that is interesting enough to get users to click on the ads,” says Greg Sterling of Sterling Market Intelligence. “But once clicked, the advertiser will have the attention of a more qualified user vs. a passive TV audience.”

These ads probably won’t be the only ones that will work—YouTube will continue to experiment with others—but they’re a promising start.

Update: I spaced out in forgetting that VideoEgg showed me very similar overlays months ago. So in case it wasn’t clear, Google and YouTube aren’t the first to roll out this format. Just the biggest.