YouTube's in-video model could be the right mix

If successful, Google could make money off its YouTube purchase

YouTube's new online video advertising model may be the right balance between what viewers will tolerate and what advertisers will pay, analysts said Wednesday. If that's the case, it could ultimately justify Google's pricey acquisition of the online video Web site.

YouTube Wednesday launched in-video ads as an unobtrusive way for advertisers to reach consumers through the online videos on its Web site.

The advertisements appear briefly as overlays on the bottom 20 percent of videos, and viewers can click and watch the ads if they choose. If a user clicks on an ad, the video pauses and the ad runs. YouTube will share revenue from the advertising with content owners, the company said in a blog posting Wednesday.

Gartner analyst Allen Weiner said he isn't sure the model will fly, but he acknowledged that Google had to do something to get a return on its US$1.65 billion acquisition of YouTube.

"Most people agree sticking an ad in an online video before, during or after doesn't work very well. It's extremely disruptive," Weiner said. "So are the ones that give you something to click on in the middle of the ad that stops what you're watching and takes you to a pop-up window and to another Web site. That's just awful. It's so intrusive that it becomes a problem."

Independent marketing analyst Greg Sterling said Google and YouTube are being cautious about how they introduce advertising into video.

"It has to be carefully done because people are generally intolerant of video pre-roll (advertising shown before a video) and right now, that's the default monetization strategy on most video sites," Sterling said in an e-mail to Computerworld.

"Google's empirical findings from its research show high abandonment rates with pre-roll," Sterling wrote. "I would say that their approach is a very interesting effort to 'balance' the interests of YouTube users, who are used to no ads essentially, and marketers -- and Google -- that want to advertise in those video streams."

Sterling said YouTube's idea is partly drawn from an earlier experiment on Google Video in which overlay ads at the top of the screen could be clicked and the main videos paused. He said because YouTube is rolling out these ads on a limited, selective basis, viewers will get used to seeing them.

Sterling added that the format puts a burden on ad agencies and marketers to create flash animation ads that are interesting enough to get users to click on.

"But once clicked, the advertiser will have the attention of a more qualified user vs. a passive TV audience," he said.

Joe Laszlo, an analyst at JupiterResearch, said advertisers are very interested in getting their ads in online video. "YouTube as a provider of professionally generated video and user-generated video is in an interesting position," he said. "Advertisers are much more comfortable with video from professional sources, and it sounds like this new ad format is just going to be used around carefully vetted video where you can assure advertisers of a certain degree of comfort."

Although users don't like to sit through 30 seconds of ads before watching a selected video, they may be more likely to accept a 20-second overlay, Laszlo said.

"I think that YouTube has always been skeptical of the idea of running video ads before the short video that it delivers, so I think this alternative gives it a way to offer advertisers something that is dynamic and interesting but also maybe a little less intrusive on a viewer's experience," he said.

"Hopefully at the end of the day, it's a win, win, win for everybody -- consumers will tolerate the format, advertisers will see good results in terms of users' response to it, and therefore Google/YouTube will be able to make a fair amount of money off it," Laszlo said.

Laszlo added that there are other companies, such as San Francisco-based advertising start-up VideoEgg, that have been using similar ads.

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