VideoEgg CEO: In-Video Ads a Tiny Market

The entire market for non-YouTube in-video ads this year is worth between just $50 million and $60 million, according to VideoEgg CEO Matt Sanchez. Over lunch yesterday, the two of us talked about VideoEgg’s recent decision to drop many of its partners from its video platform service. Sanchez explained that the company didn’t see enough potential in the video advertising business to merit the effort it was putting in. So it cut its video partner list and added non-video inventory from alternatives like Flash games and Facebook applications.

screenshot7.jpgSanchez said he subscribes to Marc Andreesen’s theory that the size of a market is the most important factor in a startup’s success. Thus he’s been willing to go through the painful process of turning his ship around multiple times (a few years, a few lifetimes, and a few million dollars ago, VideoEgg started as a personal video uploading tool provider).

By in-video ads, Sanchez is referring to what’s increasingly the online video ad format of choice (see pictured example). Some people call them in-line ads, some people call them overlays, others call them bugs. Yes, these are the same units that VideoEgg got all huffy about when YouTube “copied” them last August (yesterday Sanchez called his company’s posturing a very successful “PR stunt”). Other companies peddling such ads include adap.tv, ScanScout, and Yahoo/Maven.

But Sanchez is done pumping the PR. He’s not suing anybody, least of all Google — he’s just hoping there’s money to be made, maybe even this year. His pragmatic approach contrasts with dozens of less realistic-minded CEOs heading online video startups backed by hundreds of millions in collective venture funding.

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Bear Stearns last month estimated that YouTube will pull in $90.2 million in domestic revenue and $13.8 million in international revenue this year. That’s not restricted to in-video ads; in fact, the vast majority is expected to come from banner ads shown on pages alongside video.

Bear Stearns was even more conservative about in-video ad revenue than Sanchez. Labeling the category “video streaming” ads, the firm said it saw YouTube collecting just $22.6 million in such revenue domestically this year (that’s what’s going in the chart shown above). The number is supposed to increase to $106.4 million by 2012.

YouTube has 34.3 percent of the U.S. online video market, according to comScore’s last count. Sanchez said he’d heard that when you take into account the expected economic downturn’s effect on ad budgets, YouTube revenues will be worth closer to $70 million than $90 million.

But that’s just a competitor talking. Anyone else want to chime in? How big a market is there for online video advertising today, and how big will it get tomorrow?

Update: VideoEgg’s competitors respond.

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