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Google Says Demand Surges for Video Advertising on Web Network

Google Inc. (GOOG) said it has doubled the number of video ads that it places on partner sites in the past year, a sign it’s making headway in a push to expand display advertising.

Demand for video ads also has boosted Google’s AdMob network, which targets applications and websites on mobile devices. Requests for the spots have grown an average of more than 70 percent month to month since July, the company said.Google, which traditionally has gleaned much of its video advertising from its YouTube unit, is aiming to benefit from new online ad formats to sustain sales growth as it competes with rivals such as Apple Inc. (AAPL) and Facebook Inc. for user attention and marketing dollars. Spending on video ads may grow 39 percent in the U.S. this year, while the overall online ad market should grow 11 percent, according to research firm EMarketer Inc.

“The audience has fragmented,” said Mike Steib, director of video advertising at Google, the world’s biggest Internet- search company. “It is harder and harder for an advertiser to reach their audience as effectively and as fully as they have in the past unless they embrace video advertising across all kind of devices and across all kinds of content channels.”

Testing Video Ads

Mountain View, California-based Google, whose display-ad network serves more than 2 million outside websites, has been bulking up its services that let customers advertise using video clips. In March, it began testing some videos on its advertising exchange, yet another vehicle for display advertising that acts as a general marketplace for publishers and marketers.

“Video gets inside people’s heads,” said David Hallerman, an analyst at New York-based EMarketer. “Brand marketers want it because they can tell a story better.”

The company also has been pushing into video on its traditional search-based advertising platform. In March, the company rolled out a new video format for ads on online-query results that gives users a bigger player for watching clips.

While early adopters included Hollywood studios, which used the service to show off movie trailers, Google is attracting more interest from industries such as autos, technology and consumer packaged-goods.

“We’ve now got a variety of video formats that provide a valuable experience for users and advertisers alike,” Dennis Woodside, president of the Americas region at Google, said in an e-mailed statement. “We’re seeing tremendous growth across a range of sectors.”

Google shares fell $1.54 to $518.13 at 4 p.m. New York time on the Nasdaq Stock Market. The shares have dropped 13 percent this year.

Clicking Through

Volvo AB (VOLVB), the Swedish automaker, used video ads on mobile phones for two campaigns at the end of last year and the beginning of 2011, according to Jared Hopfer, associate director of mobile marketing at Mobext, part of France-based advertising agency Havas Media. The video popped up when users accessed applications on their smartphones, he said.

Users were given the option of clicking through to learn more about the product or find dealers. That kind of engagement was two to three times higher than ads that aren’t video, he said.

“In all mediums, video is one of the more interesting and often effective advertising vehicles,” Hopfer said. “In video, you’re dealing with sound and motion, where static advertising is not as lively. So it’s a lot easier to evoke emotion for a brand through a video.”

Faster Connections

The proliferation of online videos has conditioned consumers to watch advertising clips, driven by faster Internet connections on desktops and smartphones, Google’s Steib said. Advertisers that want to reach users who are watching less television need to market online, he said.

“For advertisers, online video has to be a part of the overall online media mix,” he said. “People who are watching video online are much more likely to have broadband, much more likely to have a computer, much more likely to have a high-end cell phone — which all means they’re more likely to have higher income, higher level of education. They tend to be a little bit younger.”

While video ads may have advantages over other formats, they’re also pricier, EMarketer’s Hallerman said. A video in the place of a display ad might cost $10 per thousand impressions, while a static ad on some sites might be $2, he said.

Video’s Novelty

And the novelty of videos may start to wear off with users as they become more prevalent, Hallerman said. Even with the recent surge, video ads made up 5.5 percent of overall U.S. online ad spending last year, and will be less than 7 percent this year, EMarketer estimates.

“As there is more video used in banners and search, the more people will ignore them,” Hallerman said. Television, the other major video format, can make it more difficult for users to ignore commercials, he said.

Still, the overall growth in video ads makes it a format that Google must focus on, said Whit Andrews, an analyst with Gartner Inc. in Shrewsbury, Massachusetts.

“If you’re going to go after brand, and if you’re going to go after mood, and if you’re going to go after awareness, video is increasingly critical,” Andrews said. “Advertising is Google’s core business. Anything that matters in advertising is something that Google is going to pursue.”

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