It's not a well-known fact that AOL (UNKNOWN:AOL.DL) is the video advertising leader on the Internet, mostly because people tend to think that Google (NASDAQ:GOOGL) is actually the leader because it is ahead in overall video views, led by its popular YouTube franchise.
With little in the way of growth prospects for its search engine ad business, Google is now looking toward the potentially lucrative online video ad market for future growth. Marketers are now more interested in premium online video ads. This is why AOL leads the market, as it has far more brand-safe video than Google, which has been dominated by user-generated content over the years, content not considered attractive by most companies.
Branded ad market
When including the overall brand market, it's gigantic, generating over $300 billion per year, according to Lucas Watson, vice president of brand solutions at Google.
Breaking down online advertising, direct response ads (of the search engine type) are expected to grow from $25 billion today to $32 billion by 2017. Brand advertising on the Internet (primarily video) is estimated to grow from $18 billion in 2013 to $31 billion by 2017, according to eMarketer.
With billions in advertising revenue on the line, Google, AOL, and soon Facebook (NASDAQ:FB) will be expanding their premium video offerings to attract advertising dollars in this vital growth market.
AOL video ads
The November 2013 U.S. online video rankings from comScore confirm that AOL continues to lead Google in the number of video ads viewed. AOL had 4 billion video ad views to Google's 3.6 billion.
Where AOL outperforms, though, is in the total online video ad minutes metric, where it has over 1.8 billion video ad minutes to Google's 365 million. Currently, Facebook isn't even in the picture, although that should change in the near future.
The reason for AOL's dominance over Google in video ad minutes, again, is the larger number of premium videos offered. Huffington Post is important in this regard, not only because it has surpassed 500 million views, according to CEO Tim Armstrong, but it is a brand that is expanding around the globe, which should help it differentiate its content as the space gets more crowded.
Google video ads
Even though Google does a lot of marketing to keep itself positioned as a tech leader, there is no doubt branded advertising will be the main growth driver over the next several years. While Google has fallen behind AOL in digital video ad views, it has a lot of potential because of both YouTube and Google Plus.
The major question is how long it will take Google to grow out its premium video offerings to secure big ad dollars. Marketers are still a little slow to put advertising on Google, but they aren't as fearful as they used to be.
Along with premium content, the other hindrance, which opened the door for AOL, was Google's resistance to using Nielsen's online campaign ratings on YouTube. Advertisers demand metrics that they can trust, and Nielsen is easily the top company in that regard. Google has given in and has employed Nielsen to use OCR technology to measure its videos. That should result in an increase in ad revenue in 2014 and onward.
Facebook ad strategy
Facebook recently announced it is ready to launch a new video ad format, focusing on the upcoming film Divergent. It will be shown on desktop and mobile devices.
Since Facebook is starting almost from scratch, there is nothing but upside for the company. Once the company gets things right, this should be a terrific revenue stream in the years ahead. At issue is whether or not Facebook can remain a leading social networking site, and if it will be overtaken by upcoming rivals. As long as it has a significant number of users, video ad revenue should become a major growth engine for the company.
Video ad outlook
As networks build out their capacity, video will become a bigger piece of the Internet pie, as will video ad revenue. Google, AOL, and Facebook are positioned (or attempting to position themselves) to be big winners in the market segment.
This is going to be a very important part of revenue growth over the next several years, and it should help all of these companies make shareholders happy. Keep watching the digital video ad segment, as that is where the future revenue growth on the Internet will come from.
Gary Bourgeault has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of 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.