VideoEgg CEO: In-Video Ads a Tiny Market

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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.

20 Comments

Tom OKeefe

Bear Stearns estimates that 2008 revenues for YouTube will be $90 million, of which $22 million comes from InVideo advertisements. Using the Bizak Business Valuation Calculator we can get a rough estimate of YouTube’s revenue valuation and EPV (Earnings per Visitor), which is the amount of money earned from each visitor to the site.

If you divide the yearly revenues by 12 you get a rough monthly revenue estimate of $7.5 million. We then enter these numbers into the calculator. At this point we’re assuming YouTube has zero costs but in actuality we know this to be false. We’ll factor in the enormous bandwidth costs of video hosting in the next section.

Based on the Bizak calculations YouTube has an EPV of $0.12 and a Bizak Estimate (business valuation estimate based on revenues) of $360 Million. This valuation is obviously a lot less than the $1.65 Billion Google paid for YouTube, however YouTube is a premium brand that must be (and was) factored into the purchase price.

http://tomokeefe.com/2008/06/04/monetizing-youtube/

hululover

Videoegg thought the acquisition of a p2p application would improve bandwidth. Maybe that didn’t work as planned. These guys are also some of the biggest assholes I’ve met.

rsslivetv

$50 million and $60 million? I’ll have to disagree with that. After looking at VideoEgg’s samples, I can see why they’re cutting back. Their ads are just as annoying as the old pop-up type that have the users scrambling to click the big “X.” Video ads can be very successful when integrated into the start of a video stream. The secret is to keep them short. I watch them all on Hulu, MSNBC, The Weather Channel, etc.

Adam

Online Video ad revenue is small? HA! This is a case of a company chasing the latest and greatest. VideoEgg fell back asswards into the ad game and now they are realizing that the cyclical and very competitive arena they have entered is no easy game to win. No powerhouse was ever built by chasing trends and with their consistent change in direction we can count them out as any real threat to the big boys of on line advertising.

Tom Nosher

It sounds a failing company calling the market small. Video is THE largest ad medium in the world. If this market is small, then monetizing social media like Facebook apps, where VideoEgg doesn’t seem to be throwing in the towel, is even smaller since that’s a medium that is a lot less proven to advertisers, given Google’s inability to monetize MySpace pages. From what I have heard, VideoEgg is all marketing engine, but with little to no real technology behind it. Rumor also has it that they have shopped themselves around to potential acquirers but with no takers. Maybe yet another sign that contraction is finally happening in the space….

Matt_

Some of Joosts most “popular” forms of advertising are their little Ad Bugs that pop up in the corner .

Ive been told eventually Joost will have into full motion 1/3 overlays like the networks and cable channels do .

Firefly

Like search was a tiny market before Overture and Google figured it out…

leopold

Monetizing online video remains an unsolved problem. We just have one less player to make noise.

Tim Street

Well I guess we all better throw in the towel.

Liz, talk to OM and get him to turn off the server. Don’t forget to turn off the lights when you leave for the Facebook party.

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