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Six years ago, ad executive Ed Robinson carried out an experiment. He spent $10,000 to produce a humorous video about a man who meets an explosive end while inflating a child's raft. He attached his firm's Web address to the clip and e-mailed it to five friends. Then he waited.
By the end of the week, more than 60,000 people had seen the 12-second spot, Robinson says. The video had "gone viral," passing from Robinson's friends to their own friends and from there, to blogs and sites across the Web. Within three months, Robinson's Web site received 500,000 hits.
For Robinson, the traffic was confirmation that the video and others like it could create buzz and, in turn, make big bucks. "I was trying to prove a point: If you entertain your audience, they will get it and the viral mechanism will make the audience come to watch you."
CASHING IN. Companies have gotten the message. Lured by the prospect of reaching millions of consumers without also spending millions of dollars for television air time or space in print media, companies have shifted more ad dollars to the Net. Video viral marketing—so named because it relies on computer users to spread commercials from person to person—has expanded from a negligible piece of the advertising pie to a $100 million to $150 million industry, researchers estimate.
While the advertising industry is reaping most of the profits, Web sites are starting to cash in. Sites that rely on user-created content, such as YouTube and Google (GOOG) video, are now experimenting with the model long used by more traditional media: charging for ad placement.
But as more ads and user-created videos go online, getting ads to go viral has become increasingly difficult. Companies need to spend more to give their message an edge. "The newness is sort of wearing off," says Andrew Keller, executive creative director of Miami ad firm Crispin Porter + Bogusky (see BusinessWeek.com, 5/22/06, "The Craziest Ad Guys in America"), creators of Burger King's "Subservient Chicken," one of the most popular viral videos in history, with more than 400 million hits. "In some ways now competition is actually higher on the Internet for advertisers."
VICTIM OF ITS OWN SUCCESS. So companies are spending hundreds of thousands of dollars for video campaigns crafted to grab the attention of the Internet's discerning and ad-saturated audience. "In some respects viral marketing is a victim of its own success," says Stefan Tornquist, research director at MarketingSherpa, a Rhode Island marketing research firm. "There is so much evocative content being produced by amateurs for free, and then there is competition among brands devoting more resources to viral marketing campaigns."
Today, Robinson's London company, The Viral Factory, charges $250,000 to $500,000 to create ads he guarantees will reach an audience equal to or greater than the one that saw his original $10,000 clip. "You can't do what we did back then," Robinson says. "Today, we could never go to a client and say, when they ask how we are going to distribute it, 'Well, I have five mates.'"
Not only do advertisers need to spend more to make the ads, but increasingly, they're having to pay for placement on sites. YouTube, the largest video site, shows about 100 million videos daily. It sells several visible spots, though it won't disclose advertising fees. "Over the coming months you will see various forms of advertising on the site that (are) mutually beneficial to both the users and the advertisers," says Julie Supan, YouTube's senior marketing director.
BRITISH INVASION. In late June, Google began testing an advertising model that features some video ads in a sponsored section for an undisclosed fee, according to a company spokesperson. The test is among the latest in the company's effort to bring in more advertising revenue (see BusinessWeek.com, 1/30/06, "Google Searching for an Edge in Ads").
Then there's Kontraband.com, a popular British entertainment and content-sharing site. It charges between 10,000 pounds and 50,000 pounds a week for placement on its site and others. Recently, Kontraband hosted an ad for Unilever-owned Axe deodorant that cost $200,000, says Kontraband Chief Executive Richard Spalding. Within a few weeks, it was seen by more than 780,000 online users worldwide, according to Spalding and The Viral Factory, which created the ad. The ad, featuring men in a small town in Alaska who use Axe to attract women, has been viewed more than 10 million times.
Microsoft (MSFT) plans to release its YouTube competitor by yearend. Spokespeople are saying little about the site, internally named "Warhol," except that it will feature original programming and host user-created videos.
VIRUS FEARS. Spalding says some companies balk at spending fees for ads intended for free distribution. But, with many Internet users wary of opening virus-carrying e-mail attachments, companies without a large existing Web presence often have little choice but to post on trusted sites."You get what you pay for, and if you don't have an audience, don't expect to send it out to 10,000 people and expect it to explode," says Gregg Spiridellis, cofounder of JibJab Media, which produced the spoofs of President George W. Bush and Presidential candidate John Kerry.
As yet, many of the hundred or so video sharing sites still don't charge for virals. Many fear that too many ads in paid spots will drive away audiences and stifle user-created content. After all, users go to these sites to see the videos most people find interesting—not ones some company paid to place. Even Yahoo (YHOO) and Google still have few paid spots. Most of their video virals are posted for free along with user-created ads.
It makes sense that video-sharing sites are wary of turning off users with too many ads. Neither the sites, nor advertising companies, want virals to become the new online spam. "If everybody is doing word-of-mouth advertising, who can consumers trust?" says Pete Blackshaw, chief marketing officer at Nielsen Buzz Metrics, a firm that monitors the popularity of consumer-generated media.
GOING MAINSTREAM. "The danger is that it has a cool factor and, as it becomes mainstream, the effects will taper off," says Edith Bellinghausen, vice-president of new media at entertainment marketing company Razor & Tie. The firm regularly places videos on News Corp.-owned MySpace (NWS) in hopes of generating viral buzz.
Still, with people spending more time on the Net, and many using video-friendly high-speed connections, it is unlikely that viral video advertisements will become anything other than mainstream before long. And, as competition for online user attention increases, companies will be forced to do more to ensure their ads are watched. That in turn could encourage Web sites to charge more for spots. "The bar has been raised," says CPB's Keller.
Click here to see a slide show of viral Web ads.