Everybody knows that video advertising is going to be the next big thing. Google can’t spend $1.65 billion dollars and not expect any sort of kickback. I’m going to take a look at where advertising on video started, and show you where it’s heading.

At first we saw standard 15 and 30 second spots…basically TV commercials ported over to the internet. On top of that, sites like AOL include a synced banner that expands while the preroll is playing:

The problem with that is the upbringing of YouTube. Users were watching a bunch of video clips, and many of them were short. As a user, I don’t want to watch a 30 second ad just to watch a 25 second video clip on every other video play. How do you solve that problem? Make the pre-roll 10 seconds or under!

This was a better solution, but there is still a problem. According to Shiva Rajaraman, a project manager at YouTube, internal tests showed that 70 percent of users closed the video when they saw any sort of pre-roll. That’s a major concern.

Now comes another format into the mainstream, the overlay. The overlay is a lot like what you’ll see on TV. Say you’re watching Seinfeld on TBS, you may see a mini Bill Engval come accross your screen to promote his new show. I’ve even seen this on TBS where they will pause the actual show while the mini Bill comes to the bottom of the screen and starts talking for a few seconds.

The overlay ad works on the same concept. Show an ad over a small percentage of the bottom of the video. When a user clicks the ad another video displays in the same player, overlaying the original. Genius! The user doesn’t lose any time watching the video, and the site can still make money with effective advertising. On top of that, if you click as a user, the advertisers video does not have to be set to play only 10-30 seconds. For example an ad for a movie trailer can display, a user will click, and can then watch the full 2-minute trailer if desired. At any point in time the user can close the ad, and it will go back to their video which was automatically paused. Double genius! YouTube’s internal studies showed that only 10% of users closed the overlay ad. Here’s an example of the format from the VideoEgg Ad Network:

Also notice that the advertisers video also plays at the end of the video automatically, and clicking the menu button will also display the advertisers message.

While this new format is majorly hyped right now because YouTube will be offering it soon, VideoEgg is a little bitter because they say they invented the format about a year ago. TechCrunch has a great story on this. They also have a great followup story based on feedback they received from other companies that they too had overlay video ads over a year ago. You’ve gotta love internet drama…even going as far as VideoEgg’s homepage having this image:

YouTube will be offering the video overlay ads at a $20 CPM ($20 per 1,000 viewers, regardless of clicks or actions). On top of that…one of the coolest parts about it is that they will be offering a revenue split with the video creators. There are no details of how much it will be or how it will work, but obviously there are many concerns such as making sure somebody is the video owner, copyright, etc. It will be interesting to see how Google/YouTube positions themselves on this.

I’ve also seen a couple other video overlay formats, one being PreRollr that I had tested on Video Experiment. I had found the ads to be very annoying to users in two ways:

1. On a blog like VE where you show a bunch of videos, a user would have to close the ad on every video they wanted to watch.
2. Since the ad is overlayed on the video from the get go, it’s hard for a user to differentiate between an ad and a video. The overlay method that VideoEgg does is much better because the ad comes in after playing the video for a few seconds, and goes away on its own after 10 seconds.

This is what PreRollr would look like on a video:

They must have realized there were issues because going to their homepage now shows this message:

Revlayer’s down for the moment due to new developments we’re adding to our ad serving technology. We’ll be back up soon!

One competition (or should I say a parallel format) with the overlay format is contextual overlay. It’s offered by a few different companies, and I’ve seen it implemented on MetaCafe before. Contextual overlay is like a mix of Google AdSense with video overlay ads. They are ads that appear in relevant websites and videos to offer a more targeted solution for advertisers. Here’s an example of this from AdBrite’s InVideo solution:

Know of any other cool technologies? Post your comments and let me know.