YouTube lets advertisers buy search terms

SAN BRUNO, Calif.--YouTube on Wednesday said it's rolling out a new ad platform called Sponsored Videos.

According to YouTube, which held a press conference at its headquarters, Sponsored Videos lets users promote their videos by bidding on keywords. Here's how it works: First, YouTube users, whether individuals or corporations, decide which of the videos they've uploaded they want to promote through site search. Then they decide which keywords they want to target.

Google, YouTube's parent company, has created automated tools that help users place bids for the keywords in an automated online auction, as well as set spending budgets. When people use keywords in search terms for videos, YouTube will display relevant videos alongside the search results. If you're, say, a Hollywood film studio, maybe you bid on the words "movie trailer."

Wow. Selling keywords on YouTube's search. What a great idea!

It only represents the single most important concept in online advertising, and it's the inspiration on which Google built an advertising dynasty. So why has it taken so long for YouTube to adopt a similar strategy?

The Web's largest video site has been casting about for a way to cash in on its 80 million users. Google CEO Eric Schmidt has said several times this year that YouTube was not generating the kind of revenue the company hoped it would. Wouldn't creating an Adsense-like offering on YouTube have been one of the first things Google did after purchasing YouTube for $1.65 billion two years ago?

As one reporter asked YouTube executives: "Wasn't this a no-brainer?"

It's not as easy as it looks, according to Matthew Liu, a YouTube product manager.

"You're absolutely right," Liu told reporters. "In hindsight, it is a natural transition for YouTube to make. We've been working on this for months. The key was, we wanted to make sure we got it right. There are a lot of intricacies involved. YouTube is a video discovery platform. We've been integrating with Google AdWords for some time, and now we're at a place where it can be win and win."

Sponsored Videos, labeled as such when they appear following a keyword search, are priced on a cost-per-click basis. Currently, only U.S. users can bid on video keywords.

So how much could this be worth to Google? It's hard to say, at this point, whether Sponsored Videos will be the answer to YouTube's revenue problems, but consider that the site recently surpassed Yahoo to become the No. 2 Web search provider, behind Google.

To squeeze more money out of YouTube, Google has launched other ad formats, such as posting links near videos, enabling visitors to purchase goods found in the clip. Google has also worked to repair its reputation in Hollywood and has recently signed deals that will bring full-length TV and film content to the site.

Google shares closed trading on Wednesday at $291, down more than 6 percent. This was the first time the stock fell below $300 in three years.