The Emerging Era of Video Ads: Google's Plans To Expand Youtube

Learn how Google aims to grow through its video giant, Youtube, and what this implies for one of its largest video ad competitors.

Jun 28, 2014 at 6:00PM

Over the past few years, the video advertising industry has significantly moved from television to online sites. One of the main beneficiaries behind this scenario is Google (NASDAQ:GOOG) (NASDAQ:GOOGL), which generates considerable revenue from its video-sharing website, YouTube.

Last year, this subsidiary was estimated to make $5.6 billion in revenue, providing entertainment to more than a billion users per month. Amid the growing trend of companies shifting their budgets from TV ads to digital media, other companies, like social network giant, Facebook (NASDAQ:FB), are entering the business of providing video ads.

YouTube is one of Google's most important ad platforms, and it has a positive reputation as an efficient tool to build business brands. Throughout this year, Google has acquired several video ad tech companies, and has also launched new services. These decisions suggest an interesting outlook for growth in the next months and years.

Improving video ad technology through acquisitions
Google's acquisitions of video ad tech companies this year reveal its aim to improve its platform service and ad measurement. Last week, the tech giant bought mDialog, the developer of SmartStream, a platform that manages, delivers, and measures video advertising performance over a variety of IP-connected devices.

This recently acquired company will work with Double Click, Google's ad technology unit, to improve the service given to publishers and agencies. As a result, clients could monetize their videos better. In May, Google acquired Adometry, another video ad tech provider, which operates algorithms able to determine the channels in which ads eventually turn to conversion or sales. In that manner, the organization can offer better ad measurement data to its clients, so that they know exactly how their ads monetize.

Launching new initiatives
Due to marketers having issues with their ads appearing next to poor-quality content, Google launched "Google Preferred". This initiative allows clients to present their ads in the top 5% of the most popular content in YouTube, or in high-quality channels. As a result, they can build their brands better, appealing viewers that are likelier to buy their products or services.

Earlier this month, Google started offering a programmatic ad video service only for top brands and premium publishers through its newly created marketplace, called Google Partner Select. The value of this service also seems to justify a premium price, destined for select brands. It seems like an intelligent move to increase revenue from clients with a high willingness to pay. This could considerably increase Google's overall ad revenue, plus helping other businesses expand their brands to a great extent beyond the YouTube ad platform.

Enhancing the YouTube ecosystem
Later in this summer, YouTube will launch its paid music service. Even though it is ad-free, this initiative can engage users into the site's ecosystem, which could then lead to users watching videos and clicking on ads. So far, 95% of record labels in the music industry will be featured in the service. In that way, it seems like an interesting way to improve the entertainment service of YouTube, adding value to the video-sharing site. Moreover, it is a new way to create a revenue stream from the large amount of the video giant's users, since the service will require a paid subscription.

Competing with world's largest social network
Facebook started offering a premium video ad service for select advertisers a few months ago. It works with a company called AceMetrix to assess high-quality standards of video ads in terms of watchability, meaningfulness, and emotional resonance. Recently, Facebook tweaked its news feed algorithm in order to determine better whether users watch video ads.

This new branding tool could increase Facebook's revenue considerably, taking into account that it can reach approximately 1.3 billion monthly users. It could also divert marketer's attention away from YouTube, depending on the brand's aims. For that reason, the video giant should be aware of Facebook's future moves in the video ad industry.

Final foolish takeaway
Google plans to fully take advantage of companies transitioning their ads from TV to online sites. For that reason, it has acquired video ad tech providers and has launched new services. The acquisitions show how Google seeks to improve its video ad platform while making it a better tool to help its clients build their brands. Moreover, through the launch of new initiatives, the organization can create better targeted ads able to compel agencies and publishers to the video-sharing website.

The future launch of its subscription-based music service shows how Google is improving YouTube's ecosystem and creating a new revenue stream. Also, it currently leads in the video ad industry, staying ahead of Facebook. However, it should still be aware of how the potential growth of the largest social network's video ad service could be a threat in the future.

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Alvaro Campos has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Facebook, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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