Video Advertising: Branding Opportunity Or Direct Response Platform?

We’ve all seen the stats on video advertising growth. eMarketer suggests $4 billion by 2011 and Jupiter goes as high as $7 billion. As is often the case with these numbers, they are largely a black box, in that unpacking the elements that actually get us there from where we are today are unclear. The core drivers of any online ad business are really threefold: 1) the size of the audience; 2) the engagement of the audience; 3) the quality of the audience. In the case of video advertising, these three pieces are in flux. Let’s break them down:

Audience size: Video consumption has clearly gone mainstream, and by 2011 it is predicted to double to 165 million US uniques, and reaching 90% of the total audience, according to eMarketer. Those numbers resemble email and search adoption rates. In other words, video consumption becomes a ubiquitous part of the online experience. Key growth drivers: broadband penetration, mobile video, volume of video content available online.

Engagement: Growing dramatically, but across slices of inventory of varying quality in terms of advertising suitability. According to comScore, the average unique video user now consumes 70 video clips per month. Local television broadcasters only put roughly 10% of their content online today. Key growth drivers: Improved video search and navigation, higher quality content coming online.

Audience quality: As more high quality broadcast video content moves online, the audience demographic is changing to reflect a more typical cross section. Where the YouTube phenomenon has really skewed younger (if you have kids in your house, you have definitely watched the dancing German gummi bear, among other gems), sites like Hulu and the increasing amounts of video on sites like MarketWatch and the Wall Street Journal are attracting an older audience more in line with the demographics media buyers understand in the offline world. Big growth drivers: quality and quantity of broadcast content moving online.

This brings us to the core question: Is video advertising the opportunity that finally moves branded ad dollars online, or is it the next big direct response vehicle? To put this in perspective, less than 3% of television advertising dollars are spent online today, and the growth in the online video audience far outstrips the dollars being spent. Google and Overture proved that the web is an extraordinary platform for direct response, but the question remains as to how/when branded dollars move online, specifically around video.

As an illustration, at a recent conference I asked one of the big online insurance comparison sites if they had tried video. They quickly answered that they had and that it didn’t meet their hurdle rates for ROI. I was a bit surprised by this as they had no inclination to assign any brand value to the impressions they had run, the primary reason being that the dollars they were allocated to spend had only a single dimension of value—the direct response ROI. This is true today across the board. Search dollars are spent and managed through search agencies. Brand dollars are spent and managed through more traditional agencies. Both are trying video but neither have yet found that it meets their needs. This is as much a structural problem in the way the inventory is purchased as it is the efficacy of the inventory itself.

There are signs that this can be solved. The key to direct response is relevancy, meaning how relevant the ad is to what the user is looking at. The ability to better understand the content of a video or its topic through behavioral and contextual mining will continue to tighten the targetability of the inventory, and should begin to move it towards the hurdle rate the direct response folks need. The increase in quality broadcast content coming online combined with the improved discovery of that content means we should start to approach the kind of critical mass of reach that the brand buyers desire This will also meet their need to advertise against quality content that doesn’t put their brands at risk. It’s still early, so predicting which model adopts video will be one to watch.

Tom Wilde is the CEO of EveryZing and has been a player in the search industry for over a decade, including heading marketing at FAST, managing the global search & publishing business at Terra Lycos, and heading the North American business for Miva. The Video Search column appears on Thursdays at Search Engine Land.

Opinions expressed in this article are those of the guest author and not necessarily Search Engine Land. Staff authors are listed here.

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Tom Wilde