IP Democracy: Google Does It...Search Giant to Sell Video Ads


advertising.jpgBack in December, Mitch and I wrote a report on Google (part of a series on Television 2.0 Leaders) where we took a bold leap and suggested that Google’s best next step would be to start selling video advertising. Sure enough, the search giant will do precisely that.

On the heels of AOL’s acquisition of Lighteningcast, Google announced yesterday it will start selling video ads on its Adsense partners’ websites. And as it does with text advertising, Google will sell on a bid basis to contextually relevant sites.

Until now, most sites and networks that sell video advertising have largely negotiated prices one on one with advertisers. Google, by contrast, wants to bring its highly automated auction system to video advertising. Indeed, it will run a single auction for text, graphical and video ads. Advertisers, moreover, can bid either as a price for each time a user clicks on the ad to visit their site or a fixed fee to show the ad to 1,000 users.

Google’s computers will evaluate all of the bids and decide which one will end up making the most money. At the advertiser’s discretion, ads can be placed on pages with content relating to specific keywords, or on sites of their choice.

In our report, we said that Google could price these ads either on a click-through or a per impression basis, the way traditional video advertising is sold, although it seems likely that ads will be prices on a CPM (cost per thousand) impression. Using a range of Internet video advertising prices, we also said that Google could expect to charge from $5/CPM up to $50/CPM.

Using these assumptions and reasonable levels of impressions, we concluded that video advertising is worth to Google anywhere from an additional $58 million in incremental revenue during the first year of sales up to $472 million. And that’s just year one.

Google Annual Ad Revenues Under Different Scenarios ($000s)
    $ Change
No Video Ads  $       8,758,616 na
Video Ads - CPM@$5  $       8,817,578  $      58,962
Video Ads - CPM@$10  $       8,876,541  $     117,924
Video Ads - CPM@$20  $       8,994,465  $     235,848
Video Ads - CPM@$30  $       9,112,389  $     353,773
Video Ads - CPM@$40  $       9,230,313  $     412,735
Video Ads - CPM@$50  $       9,348,237  $     471,697
Source:  Emerging Media Dynamics, Inc. analysis © 2005.



Posted by Cynthia Brumfield on May 23, 2006 8:00 AM to IP Democracy