From its beginnings in 2006, when the online video advertising industry had little revenue, to an estimated revenue of over US$900 million this year, the industry has exploded.
Amir Ashkenazi, CEO of Adap.TV, a San Mateo, Calif.-based online video advertising platform provider, shares those thoughts in an exclusive interview with ECT News Network.
He reports that the online video ad spend is projected to grow to about $3.9 billion to $4 billion by the year 2012. And he expects the continued movement of traditional TV advertising to the online space.
Listen to the podcast (22:23 minutes).
Ashkenazi believes that the keys to continued fast growth of the industry include the following:
- A rapid increase in the consumption of online video
- Ubiquity of high-speed broadband connections
- Growth in CPM rates due to increased targeting capabilities
The online video ad industry does face a couple of big challenges, though, he said. First, the economic downturn will impact the industry as advertisers reduce spending. Secondly, there exists a lot of friction between various industry players (publishers, ad networks and advertisers) due to the challenges of the online video ad process.
He added an important note to Web site publishers: Making money right now is not guaranteed. However, lots of experimentation with ad formats, ad frequencies and content should eventually yield a winning formula.
The most popular content types for advertisers include sports and women-focused. However, publishers should also keep in mind that advertisers are migrating toward more professionally produced content, and being very wary of user-generated content, he said.
Here are some excerpts of the interview.
E-Commerce Times: I’d like to get started by having you describe, sort of in a nutshell, what the state of the online video advertising industry looks like right now.
It’s very interesting. The industry started in 2006, those were the early days of both consumption of broadband video and advertising. We saw a lot of experimental budgets coming in 2007, that was the experimental stage. Many advertisers tried things with very, very small budgets. In 2008, it really turned to real investments from a growing group of advertisers. So EyeWonder reported about $909 million ad revenue for this year, and I’ve read some reports of $3.9 or $4 billion in 2012. The expectation is to have at least double-digit spend growth in 2009, so the wild card is obviously the economic downturn. Nobody knows exactly what will be the impact of that, but one thing we may be experiencing already is the movement of inefficient TV ad spend in the shift to online video.
ECT: It looks like the industry is growing very rapidly. What do you think are the keys to that growth?
There really are two components to that growth. One is the rapid increase in consumption. With the improvement in broadband speeds and penetration, online quickly becomes a good alternative to the old TV. So there’s definitely, we see, even faster increase in video consumption. The other component is eCPMs, or the amount advertisers pay to be placed on those videos. That is growing too with the increase of targeting capabilities compared to the TV world. So the question should be, “How can we make it grow even faster?” Because I think if you speak with advertisers, it’s funny because advertisers complain that there is not enough content, and publishers complain that there is not enough ads.
They’re both correct from their perspective. The main problem that we see in the industry is just a lot of friction. And one of the main goals of Adap.tv is to remove the friction from this process — basically build a really efficient way to connect publishers and advertisers, enabling publishers to get the ads from multiple sources and maximize their revenue. So we did many stabs in that direction, one of which is expanding the support of ad formats and we pretty much support all ad formats right now, the other is make it really simple for publishers to serve their own ads — the ads their sales teams sell; and the last one I can mention is the ability to use display creative and display formats on videos, basically bridging the gap between the two industries.
ECT: So, when you talk about display in the video sense, is it analogous to display in the text advertising format sense?
One of the challenges is just the production cost of creating a video ad — not all advertisers can afford, not all advertisers want to spend this kind of money, so one of the things we allow them to do is to use creative that they’ve already created for display advertising, and use it on video. The brand impact is a lot stronger without the cost of creating a dedicated video ad format.
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