Playboy Surfers Targeted for VW Polos in Web Video Ads

Christian Baudis has profiled the perfect target for Volkswagen Polo online video advertisements in Germany: a man aged 25 to 39 who watches soccer matches, checks out the Playboy site and reads Der Spiegel magazine.

So the European head of New York-based Tremor Media Inc., an advertising network, knows which Web sites to market to the German carmaker’s ad agency.

“We go to them and say here are 150 sites with video content that is attractive to that target group,” said Baudis, who works with Volkswagen’s ad agency, Mediacom, a unit of WPP Plc, the world’s biggest advertising company. “Targeted advertising is more efficient. It costs less money to reach the target. That’s the beauty of it.”

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Online video ads are the fastest-growing piece of the advertising industry, aided by their ability to show off products in a feature-rich medium and, increasingly, to zero in on a target audience. Volkswagen and HSBC Holdings Plc are among European companies using online video ads to reach potential customers as television audiences shrink.

In Europe, spending on online video ads could triple between 2009 and 2013 to about 1 billion euros ($1.4 billion), said Nate Elliott, an analyst in London for Cambridge, Massachusetts-based Forrester Research Inc. In the U.S., the online video ad market could grow to $3.01 billion in 2014 from $879 million in 2009, according to Forrester. Such ads currently account for just 1.6 percent of what’s spent on TV commercials, says New York-based research firm eMarketer Inc.

Still Young

HSBC’s two video ads on Web sites including those of the British Broadcasting Corp. and National Geographic, were among the bank’s “best-performing campaigns we ran last year,” said Ceren Dogany, digital account director at Mindshare Worldwide, a WPP unit. “We received a massive number of clicks and a really high click-through rate.”

Targeted advertising is in its infancy, Baudis said. Information on consumer preferences is drawn through “cookies,” or a small piece of text stored on a user’s computer by a Web browser. Ad agencies can then post ads based on consumers’ browsing habits. The system relies on consumers accepting the cookies and may be capped by privacy concerns.

“Consumers do appreciate targeted advertising, although it will take some time to develop, to convince them because of privacy issues,” he said. “Normally, targeted advertising will mean that you get better ads.”

The ads are inserted in a video program on a Web site or occupy space on an Internet page. Program developers in Europe are scrambling to capture this new revenue.

‘Huge Opportunity’

Welt der Wunder,” a German producer of science, technology and educational shows that gets no ad revenue for programs aired on TV, sought the aid of Tremor, which pools several Web sites to make it worthwhile for advertisers.

“I liked the idea right away,” said Hendrik Hey, a producer for “Welt der Wunder.” “As a production company it’s hard to set up your own marketing division.”

Tremor, which aggregates Web sites for advertisers and provides them technology to place their ads, is among new players spawned by the online video ad trend. It is banking on Europe following a trajectory similar to the U.S.

At about 25 million euros, online video ad spending in Germany is miniscule compared with the 3.9 billion euros spent on TV ads, said Baudis. Online video advertising in Germany alone could grow six-fold by the end of 2012, he said.

SAP Ventures, an investment arm of SAP AG, the world’s largest maker of software for businesses, last year invested an undisclosed amount in Tremor.

‘Ubiquitous’

“We felt that growth in online video advertising would be one of the strongest online advertising sub-segments,” said David Hartwig, a SAP Ventures partner in Palo Alto, California. “Online video is going to start encroaching on some traditional TV viewing and it’s going to start to pull from TV advertising, making it a really huge opportunity.”

Other companies capitalizing on the trend include Cambridge, Massachusetts-based Brightcove Inc., with a platform that publishers use to manage video content. Its investors include General Electric Co. and Hearst Corp., and it manages video content on the Web sites of The New York Times, Conde Nast Publications and Universal Music Group.

“Video will become as ubiquitous and pervasive as text on the Web, and if you’re an organization, a corporation, a media company, you’re going to make video a much more central part of how you market, communicate, educate and entertain,” said Jeremy Allaire, its founder and chief executive officer.

TV Decline

Most online videos, into which ads can be inserted, are between three and five minutes long. Microsoft Corp. recently established MSNmovies in Germany with 200 movies into which it inserts ads in every chapter.

“It’s on demand, for free and a continuous experience to the consumer, like on TV,” said Marc Adam, marketing director of Microsoft’s MSN.com.

MSN.de in Germany sold all movie ad space for months to come and may now put in two or more ads per chapter, he said.

Tremor’s Baudis said advertisers don’t understand the technology and still place the bulk of their marketing dollars in TV. That may change as companies including Ford Motor Co., Mars Inc., and Citibank Inc. earmark a portion of their ad budgets for online media.

TV is already feeling the pain. According to Forrester, 2009 was “the worst advertising year since 2001” for broadcasters. Reasons it cites include a shift to online advertising, a shrinking audience share during prime time and increased competition from digital media among younger viewers.

Higher Engagement

“A lot of big brand advertisers are taking us as if we were a TV station,” Baudis said. Tremor has more than 3,500 Web sites globally where it can stream ads.

Advertisers online know exactly how many viewers they’ve reached, unlike with TV, said Brightcove’s Allaire.

On TV, it’s a “brand impression,” he said. “On the Internet, a video ad comes up and it’s designed as a call to action for the user and they can click it, taking them to the marketing Web site.”

Advertisers can target age groups and gender by analyzing browsing habits.

“If Tremor has a client, a big pharma company like Bayer or Novartis, they will come to us and ask what programs we have on health or medicine that can be put on our Web site, with the ad from the company running with it,” Welt der Wunder’s Hey said.

On TV and in newspapers, such targeting is harder.

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“The more it’s targeted, the more advertising becomes information, and the more it becomes information, the higher the engagement and interest in the ad,” Microsoft’s Adam said. “That’s what can happen online.”

To contact the reporter on this story: Ragnhild Kjetland in Frankfurt rkjetland@bloomberg.net

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