Google Search Ads Stronger Amid Slowdown? - Page 2

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Video-ad market

Perhaps the greatest question surrounding Google's ad business is its nibbling in the video market. The company's YouTube video-sharing site served up nearly 35 percent of the 12.1 billion videos Americans watched online in May, according to comScore (NASDAQ: SCOR). Brin said that 13 hours of video are uploaded to YouTube every minute.

"YouTube is a cultural and end-user success that is far, far greater than we expected," CEO Eric Schmidt said. But it still isn't the gold mine that Google ultimately believes it will be. "I personally do not believe that the perfect ad product for YouTube has been invented yet."

It's not for lack of trying. Schmidt noted that Google has tinkered with various ad formats, such as preroll and postroll clips. At present, Google is optimistic about the InVideo format, in which an ad appears at the bottom of the video window while the clip is playing. To Schmidt, InVideo is a "pretty good winner" but certainly not the final solution.

"There will be new monetization forms that will go for the new entertainment form -- and that is what we're seeking," he said. "That is the Holy Grail -- when we find it, it's likely to be very large because of the scale and scope of YouTube."

As an early example of that innovation, Schmidt pointed to Lionsgate Films, which earlier this week signed a deal with Google to serve ads next to unauthorized clips from its movies that have been appearing on YouTube.

"Here's a community that's busy making copies that are not authorized of content, and Lionsgate has the good judgment to say rather than go and sue those customers, instead let's go capture that, show an ad against them and get them even more excited about our content," Schmidt said, making reference to the $1 billion lawsuit Viacom has brought against Google for copyright infringement.

"So we think those kinds of models are sustainable and scalable on the Internet and are likely to be very, very significant sources of revenue," Schmidt said.

If not tomorrow, then perhaps next week, analyst Squali suggested.

"Long term, the still-nascent monetization opportunities in display, video and mobile still provide ample headroom for Google to grow," he said, reiterating his "buy" rating.