Last week, Google launched its long-awaited video advertising service, a move designed to add a revenue stream to its video offer. The launch will also add to the already intense pressure the internet search market-leader is placing on TV broadcasters and their advertising agencies.
However, the new service is not on the main Google search page, but via Google's AdSense network of sites. It lets advertisers pick relevant sites to fit their audience. The launch of the video advertising service coincided with Google's reporting of its second-quarter financial figures, which revealed the sheer power of its momentum. Profits soared by 110 per cent to $721 million in the three months to June. The search company's revenue was up 77 per cent at $2.46 billion, compared with the same period in 2005.
Also consider that Google is growing faster outside its home market than it is in the US - where its video advertising service is already operating and performing well. The company said that the proportion of income earned overseas had risen from 39 per cent to 42 per cent. It is hoping to accelerate this earnings trend by luring advertisers away from other media through promoting the high level of targeting made possible by its new online ads.
Advertisers can bid to place video spots in much the same way as they do for text searches. Users who then want to view ads can press the "play" button on the control bar at the bottom of the ad window to start the video.
Advertisers will be able to measure the effectiveness of their video ads through a variety of means: by tracking ad playback rates as well as the length of time a viewer chooses to watch an ad, and also by click-through rates to an advertiser's destination site.
The ads will be triggered to appear on Google's network of third-party web pages through the AdSense system.
Damian Burns, the head of agency relations for Google in Europe, explains that the pricing for click-to-play video ads can be either cost-per-impression or cost-per-click. "The pricing model will drive the market forward.," he says.
"The price entry point is just 25 cents. Google operates in a unique way; there is no ratecard and we don't decide how much advertising costs, advertisers do."
Burns is bullish about Google's pricing model, which is unsurprising considering the confidence the search giant displayed when it abolished commission - the standard system on which most media agencies make their money - earlier this year.
He says: "I don't believe agencies can argue against what we're doing. Agencies always strive to do what's in the best interest of their clients and Google video delivers true value to our users because it is offering relevant results through the value of delivery.
"Moving to a net pricing model puts everyone on an equal footing. If you bring in a third party, you leapfrog more relevant advertising. We believe that a cost-per-click model delivers better results."
Burns is keen to stress that Google is not on a mission to compete with television broadcasters for a share of TV ad revenues, arguing that Google video will "supplement TV activity".
He says: "We've already demonstrated in the US that Google video is effective working in tandem with TV. It's a fantastic opportunity for advertisers, as they can use the Google infrastructure without having to worry about the technology cost."
As he is the man charged with fostering good relations with agencies - which rely on TV advertising for the bulk of their revenue - it's unsurprising Burns is keen to downplay Google video's threat to the TV industry.
Yet perhaps agencies and broadcasters can relax after all. Wayne Arnold, the chairman of IPA Digital and managing partner of Profero, believes it is still too early to predict how Google video will develop, but suspects the threat it poses to television broadcasters has been overstated.
He argues: "Google video is a good excuse for agencies to whack their TV ad online and say to themselves 'job well done!'. But the Google model does not work in the same way as the TV advertising model. There is a question-mark over the context.
"As I understand it, Google video will deliver targeted advertising, perfect for niche players, but for big brand advertisers it's doubtful that they will have any success achieving a broad reach. Will their ads make any sense in this context? I'm not so sure."
WHAT IT MEANS FOR ...
- As broadband uptake continues to grow, advertisers will allocate an increasing amount of their spend online, harming ad revenues at broadcasters.
- Small to medium-sized advertisers will find targeted video advertising an increasingly attractive prospect. Big advertisers will still value the mass audiences TV can deliver but broadcasters could become increasingly reliant on investment from a small group of the nation's largest advertisers
- Creative agencies and digital agencies will benefit from the new revenue streams and creative opportunities video advertising creates. Profero's Arnold contests the notion that the Google launch should make big brands think more about "interactive" campaigns. "If all we do as an industry is take ads online, we're not doing our job properly," he says.
- At first, media agencies could resist attempts to try out Google's new technology through resentment at its scrapping of the traditional commission system and introduction of a quarterly payment system. But, as the internet search company cements its position as the dominant player in the market, most agencies will cooperate.
- The newspaper industry could be the hardest-hit. Arnold believes that the targeted nature of video advertising on Google could help the classified advertising become "three-dimensional", taking this lucrative market to the next level but hitting newspapers in the pocket.