DESPITE online video and commercial-skipping DVRs, companies still spend 38 percent of their advertising budgets on television ads and just 1 percent on online video. YouTube is trying to change that.
In a bid to lure TV ad dollars, YouTube is making the case to brands that online video is the best way to reach customers. It is part of the YouTube’s evolution from a free-for-all Web site for goofball videos to, it hopes, a destination for professionally produced videos and the advertisers that want to appear near them.
“We would love YouTube to be a much larger part of brands’ advertising budget and mix in the next year and the future than it is today,” said Lucas Watson, YouTube’s vice president of online video global sales.
YouTube has been trying for two years to transform itself into a bigger revenue producer for Google by attracting advertisers with professionally produced videos and new kinds of ads. It now says it has 800 million unique viewers worldwide a month. Analysts estimate that YouTube contributes more than $1 billion to Google’s annual ad revenue and is most likely profitable.
But YouTube, now six years old, is still in the early stages of making money. Advertisers spend just $2.2 billion on all online video ads, compared with $60.5 billion on television ads, according to eMarketer, a research firm, and ad agencies are only now hiring people with expertise in online video. According to an estimate by Citigroup, YouTube will contribute 5 percent of Google’s total annual revenue in 2011.
“For big branding campaigns, TV is always going to be a huge part of it,” said Michael Tabtabai, integrated creative director at Wieden & Kennedy, the ad agency. “But a lot of brands are taking risks, putting money in places they may not traditionally have chosen.”
To earn a larger share of television ad dollars, the biggest prize in advertising, YouTube has to recruit new kinds of advertisers, beyond the music, entertainment and technology companies that have flocked to the site, and convince them that YouTube is a fruitful place for brand building.
And Google, which got its start and still makes the vast majority of its money from search ads — a few lines of text that invite a direct response — has to learn how to work with advertisers who want to sear their brands into the minds of Internet users.
YouTube’s latest step in that direction is the hiring of Mr. Watson, Procter & Gamble’s former head of digital business strategy, who in June became YouTube’s first vice president of online video global sales.
By hiring Mr. Watson from Procter & Gamble, YouTube acquired expertise in consumer-packaged goods, a sector that has been slow to online video advertising. Video ads for one of Procter & Gamble’s brands, Old Spice, were a viral success online last year.
Mr. Watson said that all ads on YouTube would eventually be video ads for brands. Unlike television, YouTube incorporates social elements by inviting viewers to choose whether they watch, share or create their own videos about advertisers’ products. And YouTube, he said, had both global reach and the ability to target an ad to 20-something men who live near a pizza shop.
Still, YouTube has a small window of time to capitalize on that ability, because as Internet-connected televisions, including Google TV, become more popular, television will also be able to show personalized ads.
“It has an advantage now because it’s serving up one stream for one person and knows who that person is in most cases, but the other big networks are getting there,” said Jim Louderback, chief executive of Revision3, the Internet TV service. Even though YouTube is showing more professional videos so brands can avoid appearing next to unsavory homemade videos, advertisers still hesitate to spend as much on YouTube as they do on TV, said Benjamin Palmer, chief executive of Barbarian Group, a digital marketing agency.
“The production value on YouTube on average is way lower than it is on television,” Mr. Palmer said. “It’s hard to justify spending millions of dollars running a Web spot that has helicopter shots and explosions when your ad is sitting next to something shot on a two-year-old cellphone.”
Still, YouTube is willing to experiment with new types of advertising that could never appear on television, Mr. Palmer said, like a live-streamed ad campaign that he is working on, choose-your-own-adventure videos or user-created ads.
“We’ve kind of tapped out the medium of television,” he said, “but we’ve got years and years of brand-new experiences that have yet to be conceived on YouTube.”
Lenovo, for example, this week introduced YouTube Space Lab, a contest for teenagers to submit videos of science experiments that could be performed in space. The goal is to introduce children to the brand’s computers, which are used at the International Space Station, and promote a new ThinkPad.
“It’s much more authentic than us saying, ‘You’ve got to love Lenovo,’ ” said Tracey Trachta, vice president of consumer marketing at Lenovo. “The audience is an active part of the program as opposed to passive.”
GoPro, which makes mountable cameras for taking pictures while doing active sports, trolls for videos shot with its camera on YouTube and, with the users’ permission, edits them to show on its YouTube channel and in its online and TV ads. One video, watched six million times in two days, showed a buck leaping across a mountain biker’s trail in Africa and knocking him to the ground.
“The content ends up selling the cameras,” said Stephen Baumer, GoPro’s chief technology officer. “These consumers, to our delight, are advertising on our behalf.”
Dodge ran a campaign for its Journey vehicle that started on television and asked viewers to go to YouTube to get clues to hunt for hidden cars and find the cars in the real world. Then it posted videos of the car winners on YouTube.
“What YouTube has done in the last year is open up the platform to you as a brand to use any kind of technology and ask people to become part of the story,” said Mr. Tabtabai of Wieden & Kennedy, which worked on the Dodge campaign. “We’re really just scratching the surface.”