Google seeks brand advertising billions with YouTube

SAN FRANCISCO -- Google is stepping up an effort to win more advertising dollars from brands because the Internet giant sees this area as one of the next big drivers of its revenue growth.

The push focuses on the YouTube online video business, but also includes Google's display ad network and its social network Google Plus.

Google already dominates performance-related ads online through its leading search engine, limiting future growth there. Brand advertising is a big market that the company has yet to crack, giving it much more room to grow.

Digital brand advertising spending will grow from $18 billion this year to $31 billion by 2017, while spending on direct response, or performance, ads online will climb from $25 billion to $32 billion in the same period, according to eMarketer.

"The opportunity for brand advertisers and Google to work together is enormous," said Lucas Watson, vice president of brand solutions at Google. "We have massive growth in front of us."

The total brand advertising market, which includes digital, TV and more traditional offline ads, is worth at least $300 billion a year, he noted.

"Google has always wanted to participate in things that can be big and meaningful," added Watson, who previously worked for Procter & Gamble, the world's biggest advertiser.

Google's ad business recently separated into a performance advertising group and a brand advertising group. Before that, the business was organized by ad products, such as search, display, social and mobile. Google made the change to be more in tune with its advertising customers, according to Watson.

YouTube is the most important part of Google's brand advertising push because more people are watching online video instead of traditional TV. If this shift continues, brands are expected to move some of the massive amounts of money they spend on TV ads to online video.

"Advertisers now think that short form video is a relevant home for brand advertising and YouTube is responding," said Rob Norman, chief digital officer at GroupM Global, a division of advertising giant WPP that is the largest buyer of online media.

In coming months, Google will re-package YouTube to look more familiar to TV advertisers, Norman said.

The online video service will be segmented into categories focused on specific topics such as music, comedy, arts, sports, health, wellness and beauty. Google will share data on the audience and volume of videos available in these categories, Norman explained.

"YouTube will be more like a cable TV line-up rather than this morass that sometimes people see as YouTube now," said Norman, who works with clients including AT&T, Unilever and Volkswagen.

That will be significant because it will make it easier for big brands that traditionally spend heavily on TV ads to evaluate YouTube and buy ads on the service in a similar way, he explained.

Google spokeswoman Andrea Faville confirmed the new approach and said the company has already started presenting YouTube this way.

Google also recently said it will start using Nielsen's Online Campaign Ratings, or OCR, service, which will help advertisers measure the performance of YouTube ads in a similar way to how they track TV ads.

Google had resisted using Nielsen OCR, a stance that meant YouTube probably missed out on "hundreds of millions of dollars" in business from ad agencies, according to Brian Wieser, an analyst at Pivotal Research Group. Adopting OCR will likely accelerate YouTube's ad revenue growth next year, he added.

While OCR may help Google win more brand advertisers, a longer-term improvement in the quality of YouTube videos has made the site even more attractive to these heavy spenders, according to David Cohen, chief investment officer at Universal McCann, part of Interpublic Group, one of the world's biggest advertising companies.

YouTube used to be mostly user-generated content, such as videos of cats doing funny things. Now there's broadcast-quality video from movie studios like Sony and Paramount and an entirely new type of video content from companies such as Maker Studios, Machinima and Fullscreen.

"This second tier is where the change has happened," Cohen said. "This is content with relatively high production values – one or two steps above user generated content and a step below broadcast. There's tremendous depth here that is tremendously monetizable and a friendly environment for brands."

This improvement can be measured by how much more advertisers are prepared to pay for YouTube ads, compared to Hulu, the online video service with the highest-quality content at the moment.

CPMs, or cost per thousand impressions, on Hulu are $20 to $35, while YouTube gets $10 to $20. About two years ago, Hulu was $35 to $40 and YouTube was in the $5 to $10 range, according to Cohen.

"We work with a lot of TV friendly brands and our activities have grown exponentially with them on YouTube in the past three years," he added. "More than 100%."

Some ad agencies have even struck so-called upfront deals with YouTube. This usually only happens in the TV business when agencies want to secure space on hot upcoming TV shows ahead of time.

Publicis Groupe units DigitasLBi and Razorfish recently committed more than $100 million for future ad slots on Google sites including YouTube and Google Plus. Watson said more upfront deals are in the works, although he would not share more details.

However, GroupM's Norman questioned the need for big upfront deals with YouTube.

"You enter an upfront either to lock up inventory you can't live without or because you believe the price will be higher if you don't do it," he said. "Right now, you don't see constrained supply on YouTube at significant price increases."

Norman and others also questioned YouTube's reach. The site is huge with men under 30, making it a must-buy for brands looking to target that demographic, but it lags in other areas.

"A bigger question is whether YouTube is a must-buy for a financial-services company that wants to get older, wealthier people to switch credit cards," he said.

Google's video ad properties reached 36% of the U.S. population in September, which would make it the 33rd largest cable network, just after National Geographic and before Bravo, Pivotal's Wieser noted, citing comScore and Rentrak data.

Facebook, which is also trying to attract more brand advertisers and may be developing a video ad product, has much wider reach. Facebook highlighted this in a recent presentation, which also criticized YouTube, according to TechCrunch.

Google will need to invest a lot more in higher quality video content to win more of the brand advertising dollars that currently go to traditional TV, according to Wieser.

But it has begun to seriously focus on this goal and advertisers have noticed.

"I don't have clients saying I have to be on YouTube, but I have no clients saying they don't want to be on YouTube," said Shelby Saville, a digital executive at media agency Spark. "Clients used to say it was not brand safe but that doesn't happen anymore."