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Google's video replay

Search giant's new video-ad auction service should fare better than lackluster Google Video launch, experts say.

Google appears to be in fast-forward mode with its new video ads.

The search giant may have bumbled with the January beta launch of the Google Video hosting service. But experts said the company will have better luck with a new computerized auction service that lets marketers place video ads on publisher Web sites.

"It will be successful. Brand advertisers have plenty of money to spend on the Google network," predicted Emily Riley, an analyst at market researcher JupiterResearch. "It's the next generation" of online advertising.

Google, of course, popularized search-related advertising and has used it to become a company with a $115 billion market cap. Google makes nearly all its revenue--more than $6 billion in 2005--by selling ads that appear on search results pages and on partner Web sites.

Up until last week, Google sold text-, flash- and image-based online ads. Google now offers click-to-play video ads that appear on the Web sites of its publisher network, but not on its own sites.

Under the new service, marketers provide Google with ready-to-show video and Google hosts it but is not charging so-called "serving fees" to marketers, said Gokul Rajaram, a director of product management for AdSense, Google's ad-selling network. Advertisers are eager, he said, to put ads on Google's network because of the dearth of Web sites willing or technologically able to show video ads, he said.

"If you buy video ads today, there is very little publisher space to buy," Rajaram said. "Most sell out months in advance."

Still, Google faces a learning curve when it comes to video, experts said.

"I don't think they're going to be as sophisticated out of the gate as, say Yahoo, who has been in the video ads business for some time," said Paul Palumbo, an analyst and consultant at AccuStream iMedia Research. "But Google has a history of innovation in ad models and can build on what's been done."

Safa Rashtchy of Piper Jaffray said the proof would be in the targeting. "The key will be to what degree Google can increase the efficiency of those ads by targeting them," he said. "Video ads are interesting and inviting and they add an attractiveness to the Web site itself. The key is that they be relevant to both the page and the users' interest."

There's no question video is becoming more popular on the Internet as the success of YouTube and viral videos illustrate.

Now video is increasingly gaining a share of the total online ad market. According to JupiterResearch figures from mid-2005, spending on streaming media in the U.S. rose from $140 million in 2004 to $251 million in 2005 and could hit $344 million in 2006. That compares with spending on conventional online ads, which is estimated to be $8.8 billion this year, JupiterResearch said.

eMarketer, which does research related to the online ad industry, predicts that by the end of the decade advertisers will spend at least $1.5 billion on video ads online.

However, not everyone is ready to jump into the video waters. While large marketers will have budgets to create video ads, that's not the case with smaller companies, who represent much of Google's bread and butter, said Allen Weiner, an analyst at market researcher Gartner.

"I don't believe you can take a 30-second ad from TV and put it on the Web," he added.

Then there's the oft-debated question of whether people really want to click on ads.

In a posting titled "Google PPC Video Ads--I'm betting against it," blogger Michael Arrington listed a number of reasons why he thinks the service will be unsuccessful, including lack of consumer interest.

"First, Google needs to eat its own dog food. It won't be placing these ads on (its) own sites for now," he wrote. "Why? Perhaps their early testing showed that consumers don't want to click on these nearly as often as significantly less intrusive text ads."

So what's Google doing that's different?

Unlike many video ads that automatically play when a user goes to a Web page, Google's ads will not start until the user clicks on them, said Rajaram. Viewers can advance the video, pause it, adjust the volume or click through to the advertiser's site.

Google also hopes it will be a cheap alternative to what's already out there. Via Google's automated auction system, advertisers can bid on a cost-per-click basis, where they pay when a user clicks an embedded link, or on a cost per thousand impressions (CPM) basis. Fees on a CPM basis are expected to range between $5 to the low double-digits, compared with the current online video prices, which can run as high as $100, Rajaram said.

Advertisers can choose which sites they want the ads to appear on, and they can target their ads based on keyword, content relevance, demographics and geography. Web site publishers can choose not to accept any video ads on their sites, although none have opted out so far, Rajaram said.

Google also will tell marketers how many people play a given video as well as what the average viewing duration is, he said.

The company had 12 beta testers for the service, including Paramount Pictures, Fox Home Entertainment and General Motors.

Rajaram said internal testing has shown that video ads outperformed text ads in most cases. Google may eventually show video ads on its Google Video site, he added.

Several studies seem to back up Rajaram's claim. A study released in March by the Online Publishers Association found that 66 percent of a sample of more than 1,200 U.S. Internet users who watch online videos have watched online video ads, and 44 percent of those have taken action on what they've seen, like visiting a Web site or making a purchase.

A May 2005 survey from Dynamic Logic and Viewpoint/Unicast found that more people were annoyed by pop-up ads and television ads than by online video ads.

"It's amazing how many people do click on video ads," said Gary Stein, strategy director at Ammo Marketing. "Video ads have been shown to be pretty powerful. They also have this good branding effect."

The ads viewers want to see are ones that are highly targeted and offer interactivity, experts also said.

"Do people want to click on video ads? It depends. If you make it fun, if it's a game, a contest..." said Weiner of Gartner. "Just taking a Zantac ad and moving it to the Web is boring."

Debate aside, Google faces formidable competition in the video arena. In addition to video ad veteran Yahoo, there's Microsoft and AOL "who have very sophisticated media players," AccuStream's Palumbo said.

AOL, in particular, has been charging full speed ahead with video. In January, the Time Warner division bought video search engine Truveo and just this month acquired Lightningcast, an online-advertising company that specializes in the placement of streaming video and audio content.

Google hopes that AOL--with whom it inked a multiyear search and marketing partnership late last year in exchange for an investment--will send some of its advertisers over to Google's video ad service, Google's Rajaram said.

Microsoft, meanwhile, said in April that it would buy Massive, a company that inserts ads in video games.

Google is moving beyond online ads, whether static or video. The company began experimenting last summer with print ads and with earlier this year. Google also announced plans in January to buy DMarc Broadcasting, which sells radio ads.

And it probably won't stop there.

"Google has made early forays into print and radio (with limited success)," a Merrill Lynch research note said. "However, we expect further innovation (targeting on traditional advertising mediums can improve) and we envision long-term opportunities for Google to develop partnerships to deliver targeted video advertising for on-demand TV viewing."