Search Cancel
BusinessWeek Logo

Bloomberg

Google’s YouTube Boosts Display Advertisers 10-Fold (Update1)

May 03, 2010, 4:39 PM EDT

(Adds closing share price in sixth paragraph.)

By Brian Womack

May 3 (Bloomberg) -- Google Inc. has boosted the number of advertisers using display ads on its YouTube video site 10-fold in the past year, a sign the company is making headway to lift sales in businesses other than search.

YouTube, the most popular U.S. video-sharing site, has gotten more companies to place display advertisements, such as videos or graphical marketing messages, said Barry Salzman, managing director of media and platforms for the Americas at Google, owner of the largest Web search engine.

“What YouTube gives advertisers is massive reach and massive audience,” he said in an interview.

As growth slows at its main business of selling ads next to search results, Google needs more revenue in other areas. Display ad sales may surpass $1 billion this year as the economy rebounds and customers spend more on marketing to raise brand awareness, said Sameet Sinha, an analyst at JMP Securities LLC.

“We are seeing brand advertisers come back,” said Sinha, who is based in San Francisco. He recommends buying Google and doesn’t own shares. “When the times are tough they focus more on advertising, which generates direct sales, but when things are improving they also want to get their brand name out there.”

Google, based in Mountain View, California, rose $4.91 to $530.60 at 4 p.m. New York time on the Nasdaq Stock Market. The shares have slipped 14 percent this year.

Google Chief Executive Officer Eric Schmidt said in January that “the next big business for us is display.” The company expanded its portfolio of display-ad businesses with the purchase of ad software provider DoubleClick in 2008. Last year it bought Teracent, which helps advertisers target users.

Build-Your-Own Ads

To attract customers, Google has expanded an exchange that matches buyers and sellers of display ads and added tools that help small companies build their own ads on YouTube. Salzman’s teams focus on packaging display advertising on YouTube as well as Google’s content network of more than 1 millions sites.

“We have aligned YouTube with our display product offering,” Salzman said.

The push into display is well timed as companies loosen marketing purse strings. During the recession, advertisers homed in on search advertising, viewed as more likely to result in sales. As growth revives, companies are increasingly willing to use banner ads to call attention to brands and new products.

Spending on the major categories of display, which includes banner ads and video, may rise 9 percent to $7.92 billion this year, according to eMarketer Inc. in New York. Search advertising may rise 5.9 percent to $11.42 billion.

YouTube Versus Hulu

YouTube, acquired for $1.65 billion in 2006, is central to Google’s effort to diversify away from search. Google, which depends on YouTube for most of its video viewership, had 42 percent of clips watched online in the U.S. in March, according to ComScore Inc. in Reston, Virginia. YouTube had 13.1 billion videos viewed that month, while its closest rival, Hulu, had $1.07 billion views, or 3.4 percent. Hulu’s owners include Walt Disney Co., NBC Universal and News Corp.

Carmaker Infiniti, owned by Nissan Motor Co., traditionally relied on Google for search-related ads. In March, it promoted its new “M” vehicles with ad space on YouTube and the Google Content Network, said Kathy Roznowski, senior manager of media operations for Infiniti in North America.

“YouTube has grown and changed, and they’ve offered better opportunities for advertisers,” Roznowski said. “On YouTube, we could be on the homepage, we could be on the masthead and have a very big presence.”

Viral No More

In the past, marketers typically turned to YouTube to place entertaining videos -- sometimes with only a subtle marketing message -- in hopes they would be passed widely among users.

“Not every piece of content is going to be viral,” said John Nitti, a managing director as Zenith Media, a Publicis Group SA-owned media planning and buying agency. “YouTube has done a good job of putting together packages and programs that help drive engagement and views of that content.”

YouTube and the Google Content Network, which offers display spots on news, sports and entertainment sites, can play complementary roles, said Salzman, who joined Google in January. A customer could use YouTube’s homepage to feature a more engaging ad, while the Google Network campaign focuses on “direct response” pieces that encourage an immediate purchase.

“YouTube is giving creative directors a much more innovative way to engage consumer brands,” he said, noting the home page has recently been mostly sold out.

While professional content has increased, YouTube still generates much of its content from users, Sinha said. Some marketers are hesitant to put their branded ads next to content that some viewers might find distasteful or offensive.

Even Hulu, which features only professionally produced content, doesn’t always sell out, said David Hallerman, an analyst at eMarketer. Trying to persuade all companies to treat online video as they might television will take some time.

“For the sort of brand advertiser that’s willing to spend a lot of money, it needs to be trusted content,” he said. “It’s not even the first inning yet.”

--Editors: Tom Giles, Lisa Wolfson

To contact the reporter on this story: Brian Womack in San Francisco at Bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

Sponsored Links