Microsoft, Yahoo Address Online Ads by Letting Users Choose

Photographer: Keyur Khamar/Bloomberg

Attendees walk past the Microsoft Corp. booth during the 2010 International Consumer Electronics Show (CES) in Las Vegas, Nevada, on Jan. 8, 2010. Close

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Photographer: Keyur Khamar/Bloomberg

Attendees walk past the Microsoft Corp. booth during the 2010 International Consumer Electronics Show (CES) in Las Vegas, Nevada, on Jan. 8, 2010.

Microsoft Corp., Yahoo! Inc. and Hulu LLC plan to make online advertisements less annoying and more profitable -- by letting users choose which ones to watch.

Starting next month, websites including MSNBC.com, Yahoo.com and Hulu.com will begin letting consumers decide which ads show up in the video clips they watch online. A research study of the new Hulu-designed format led by Vivaki, the digital arm of French advertising company Publicis Group SA, showed that users were twice as likely to click an ad when given a choice than when one was selected for them.

“When you give people a choice they tend to love you because you’re showing them respect,” said Beth Uyenco Shatto, global research director at Microsoft’s ads unit. “If it wasn’t for advertising they wouldn’t be getting the content for free.”

The new ad-selecting tool, called ASq, may step up development of the $3.1 billion global video ads market, already the fastest-growing part of online advertising, Bloomberg Businessweek.com reported. While it may not end unwelcome commercials for car insurance or weight-loss pills, it may help websites command higher rates while letting marketers attract more eyeballs and better target consumers.

CBS.com, AOL.com and Discovery.com plan to start using ASq in September and Google Inc.’s YouTube is studying it. The new offering would let the viewer of an online video choose from three or more ads instead of a pre-roll clip. Yahoo and Hulu plan to use it as does Microsoft’s MSNBC.com, which features segments from the “Today” show, “NBC Nightly News” and “Meet the Press.”

“We’re getting smarter about what makes more impactful advertising,” said Uyenco Shatto. “The big aha! here is understanding what makes a viewer choose a particular ad.”

Online Ad Surge

Online advertising is expected to rise 12 percent this year to $61.8 billion worldwide from $55.2 billion in 2009, according to New York-based researcher eMarketer. Although text ads on search pages such as Google or Microsoft’s Bing remain the dominant form of online advertising, video ads are growing fast, eMarketer says. According to IDC, global online video ad spending, which was $2.2 billion in 2009, will expand to $11.3 billion in 2014.

YouTube, which has more than 1 billion views a day, says the company is “doubling” its efforts to get more viewers for its video ads.

“We are always looking to develop new formats and features that make them more interactive,” the company said.

While online ads may be seen as disruptive, they foot the bill for much of the Internet’s content. They are expected to get better at targeting individual consumers.

Fun and Engaging

“Online is much more individualist than television so targeting is extremely important and effective,” said Dean Donaldson, director of media experience at MediaMind Technologies Inc., a maker of software for digital ad campaigns.

“People do like advertising if it’s fun and engaging and that’s done by speaking to each user,” he said.

Not everyone is convinced allowing users to choose ads will benefit the industry.

“If you only watch what you like then how will it broaden your appeal?” said Richard Wheaton, managing director at Ogilvy & Mather’s Neo digital media agency, which works with clients including Cisco Systems Inc., Eastman Kodak Co., International Business Machines Corp. and American Express Co. “Everybody isn’t happy to be advertised at, but the more iPads I see the more I want an iPad.”

Wheaton said there’s a “real shortage” of quality of video ads online because they are very expensive to shoot.

Experimental

For now, most online video ads are nothing more than TV commercials posted on the Internet, said David Hallerman, an advertising analyst at eMarketer.

“The whole online video space is still experimental for most advertisers and websites,” he said. “It definitely will be growing, though search still remains No.1 in terms of dollars spent and will remain dominant.”

An estimated 9 percent of ads online are “touched” by a user’s mouse for an average 43 seconds, Donaldson said. The touch-time grows by 2 percent to 3 percent if the ad is a video.

Blinkx Plc, an online video-search operator spun off by Autonomy Corp., is among companies that stand to benefit from the expected surge in video ads, said Chief Executive Officer Suranga Chandratillake.

The site, which gets 99 percent of its revenue from advertising and was rated by ComScore as the fastest-growing video site after Facebook, targets consumers with ads using software that analyzes words and visual signs. Users can even choose their own endings to some video ads.

Samsung 3-D

Samsung Electronics Co. is using interactive ads in one of its campaigns for 3-D television. The company took a projection of the late-19th-century Beurs van Berlage building in Amsterdam and pasted it into a YouTube page. The building then cracks, butterflies emerge from it, and users are instructed to click on as many butterflies as possible to win a free TV.

“Video is emotive,” said Chandratillake. “Search is a terrible place to do branded advertising. When you think of your favorite ads, they are never Google search ads.”

There are 150 million online video watchers in the U.S. and double that in China, said Sean Finnegan, chief digital officer at Starcom MediaVest Group, a media buying and communications agency owned by Publicis.

“The majority of brands we represent plan to increase their allocation to online video this year and next,” he said.

Starcom MediaVest was part of a research group put together by Publicis’s Vivaki, along with Hulu, Microsoft and the others to study the ASq model. The group included marketers such as Allstate Corp., Applebee’s International Inc. and Capital One Financial Corp.

Eventually, video ads will become richer and accompany TV audiences migrating online. They will have social and commercial elements and target the right person at the right time, said Jonathan Nelson, Omnicom Group Inc.’s digital chief.

“Video ads and interactive ads have lineage in TV; extending that online is natural,” he said.

To contact the reporter on this story: Kristen Schweizer in London at kschweizer1@bloomberg.net.

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