Google in August, in what Jennifer Feikin, Google's director of video and multimedia search partnerships, said at the time was the first, but not the last, syndication deal of its kind.
"It's an amped-up form of AdSense," Feikin said. "We really have high hopes for this test, and we will look to roll the model out to other content providers."
While the search giant is staying mum about how exactly it plans to make money off the massive index of videos it's acquiring with YouTube, Google watchers are taking a hard look at the video projects Google has already tackled to gain insight into its plans. At stake, some argue, is the future of online video. If Google, with its wildly successful ad network, can find a way to "monetize" YouTube's viewership, it will point the way for other big Net video companies.
But if the Google-YouTube combo doesn't pan out, that failure could cool investors' fervor for online video, while adding Google to the notorious list of big companies that spent billions to acquire "eyeballs" instead of a revenue-generating company, and got burned in the process.
"YouTube didn't put ads in front of their videos yet for several reasons--namely consumers are turned off by the idea and advertisers are wary of the content," said Emily Reilly, an analyst at JupiterResearch. "Google will have to solve those issues. What may occur instead of that is Google will use something like AdSense contextual ads that rotate through the page but with no in-screen pre-roll (before videos)."
"Advertisers don't have the ability to effectively target ads," Reilly added. "Google will have to solve that too."
For the two-month test with MTV, Google licensed content from the music network and distributed it over select AdSense Web sites, said Google spokeswoman Jennifer Hakes. The video clips had video ads inserted and were targeted to the Web site's subject matter. For example, content from MTV's Nickelodeon programming aimed at children was shown on a site dealing with baby names, she said. The ad revenue was divided between the publisher Web site, Google and MTV.
Hakes said she couldn't say whether the test would serve as a model for the combined Google-YouTube effort. "We're exploring ways to integrate" Google's ad technology and YouTube's content, she said. "We're not ruling anything out."
In another two-month test that took place this summer, Google offered. The ads were shown after the video played, in what is called "post-roll" format, and banner ads were also displayed.
Outside of those tests, Google seems to be sticking with display advertising that appears alongside the content on its Google Video site. YouTube is using display ads too, mostly out of deference to its audience, which likely would be annoyed at having to watch ads before seeing the videos, experts said.
Google executives provided no details on their YouTube integration plans when they announced theirof the popular video Web site on last Monday.
But experts agree that Google must resolve differences between the user-generated content model YouTube has pioneered and the licensing model that portals, including Google, have aimed for, experts said. Traditional brand advertisers, the kind that advertise on television, may be reluctant to buy ads that will be shown next to videos of teenagers playing air guitar and surfers getting attacked by sharks, they said.
Google has proven it can license content from large media companies, but that kind of licensing goes against the YouTube content model of "for the people, by the people," Reilly said. "There are certain types of advertisers that will not be willing to put their commercial in front of YouTube content."
Google will also have to deal with the legal issues posed by YouTube users who download copyright content,onto the Web site. "There's a lot of copyrighted content on YouTube now, and that's been one of the reasons they have been reluctant to place ads," said Tom Bedecarre, chief executive of AKQA, an interactive marketing company.
No doubt Google was willing to pay so much for a company that had yet to make a profit in order to serve up ads to the millions of people visiting the site every day. For advertising, the online video market is seen as the next frontier, after search, which Google has dominated. Spending on online video in the U.S. is expected to rise from $385 million this year to $650 million next year, and $1.1 billion in 2008, according to eMarketer.
Brian Monahan, a senior vice president at the Universal McCann ad agency, speculated that Google would turn to ads that run before a video, which he said costs advertisers double what even television ads do.
"You've got somebody who just requested a piece of video content. You have their full attention," Monahan said. "People can multitask. They can keep watching the video, and if they are intrigued by the ad they can click on the (display) ad next to it." Because of the accompanying video ad, the click-through rate of such ads is three to four times higher than simple banner ads, he said.
In addition to Google having to hammer out how to combine its advertising platform with YouTube's video platform, the search giant will have to develop a melange of new ad forms to satisfy shifting demands of consumers and advertisers, ad executives said.
"Ad formats will have to evolve to take advantage of that change," said Adam Gerber, director of media strategy at video distribution company Brightcove.
Added Dorian Sweet, executive creative director in Tribal DDB's San Francisco office: "What all of this is missing is that video can be interactive. It's still a lot like television; it begins and ends."
CNET News.com's Stefanie Olsen contributed to this report.