Google (NASDAQ:GOOGL) is one of the Internet's dominant forces in online mobile video, and as YouTube's mobile viewership has grown, other companies like Facebook (NASDAQ:FB) are looking for ways to cash in on online video ads as well.
I saw it on YouTube
Over the past two years, YouTube has grown tremendously in mobile viewership. Two years ago just 6% of the video site's traffic came from mobile, but in the third quarter of this year that number had jumped to 40%.
YouTube's mobile traffic comes from both tablet and smartphone devices, which both charge the same amount for ads as YouTube's desktop Web page version does. But the key difference between YouTube webpage ads and YouTube app ads is that advertisers only have one choice in displaying ads on the app: TrueView.
TrueView in-stream ads show just five seconds of an ad and then let users cancel it and skip to the content they intended to watch. The feature launched on the YouTube app last year and the one drawback to this is that if users choose to hit the "skip" button, then advertisers don't have to pay Google. But despite the option of skipping ads, YouTube's video advertising -- for both video and desktop -- is growing by 75% year-over-year.
Morgan Stanley estimates Google's video streaming service will do $4 billion in gross revenue this year and $711 million in operating income. By 2020, the investment bank thinks YouTube could be worth $20 billion.
Last month, Google's sites, including YouTube, notched the second-most amount of online video ads viewed at 3.2 billion, and took the top spot for unique video viewers at 1.6 million. Google's strength in both video ads viewed and unique video viewers seems to be translating into mobile success for YouTube.
According to the latest comScore data, Google's sites, including YouTube, far outpace the competition in unique video viewers. But AOL overtook Google for the first time last month in the number of video ads viewed by users. AOL had a total of 3.7 billion video ad views in September, compared to 3.2 billion on Google's sites.
A new era for Facebook
Despite AOL's rise in video ads -- due in part to its purchase of online video adverting automation market place Adap.TV -- Google's biggest competitor may be Facebook. The social media giant comes in second place in the U.S. for unique video viewers, just behind Google. But the bigger news is that Facebook just launched video ad capability in its mobile News Feed.
A few months ago, The Wall Street Journal reported that Facebook would charge $2 million per day to reach all of its members aged 18-54, though video advertisers can reach smaller segments of Facebook's membership for less money. But that number was likely more geared toward a possible 15-second video option Facebook was considering for both desktop and mobile video ads.
In a post yesterday, Facebook's Radu Margarint said, "Potential customers will be able to click play to watch a video featuring your mobile app before installing the app." Facebook said on its blog that early tests showed that using video for mobile app ads increased install rates and decreased costs per install.
Facebook's video ad initiative hasn't come without its problems, though. Just last month, Justin Shaffer, who was co-leading the video advertising program, left the company. The company was expected to launch video ads over the summer, then moved that date to October, and as recently as a few weeks ago, it wasn't clear whether Facebook would launch them before 2014.
Facebook's jump into video ads comes at the perfect time. Advertisers are expected to pay $4.1 billion in video ads this year, and $5.7 billion next year. With Google already firmly planted in the space with a solid video ad model, it seems poised to benefit the most with video ads right now. The difference is that Facebook is currently limiting its video ads to companies who are looking for users to download mobile apps. Facebook is likely using this as an experiment to see how users respond to video ads before they open them up to retail advertisers and others. Facebook is being careful not to disturb its user experience too much. Once Facebook finds the perfect balance between a good mobile video ad model and good user experience, Google could have a serious mobile video ad competitor on its hands.
The advantage that Google has is that YouTube viewers are already used to seeing video ads as part of the site. Facebook users tend to lash out when Facebook makes drastic changes to its app and website. Investors will have to keep an eye on how Facebook users respond to the video ads and see if they're as accepted as YouTube video ads currently are.
Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, Facebook, and Google. The Motley Fool owns shares of Amazon.com, Apple, Facebook, and Google. 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.