Are Online Video Advertisers the Next Acquisition Targets?

Online Advertising has been getting lots of attention, evidenced by Google’s (GOOG) Doubleclick acquisition, Microsoft’s (MSFT) aQuantive (AQNT) acquisition, and Yahoo’s (YHOO) RightMedia acquisition. My earlier post discusses additional potential roll-ups in the world of online advertising agencies.

Online video advertising, a relatively newer concept in Internet marketing, is quickly becoming an important opportunity, evidenced in a study indicating that almost 6 viewers out of 10 watch video clips on the Internet. Google’s acquisition of YouTube for $1.65 billion clearly authenticated this trend, although monetization of these video viewership is still minimal.

According to eMarketer, online video advertising by 2010 will constitute 10% of all Internet marketing. Another study by Online Publishers Association shows that 44% of those watching an online video ad after watching the advertisement took an action such as visiting a Web site, going to a store or requesting additional product information. According to Adams Media Research, advertisers by 2011 will spend approximately $1.7 billion on Internet video advertising.

I suspect that from now on Microsoft will become more alert about what it needs to acquire, how soon and at what price. Google, most likely, will try to crack this nut via internal R&D and unless a startup comes up with rocket science technology and IP, that is protected by patents, their approach will likely be to challenge the droves of Computer Science Phds to justify their existence by coming up with the technology themselves. Yahoo, on the other hand, also needs to keep up the acquisitions.

So whom would Microsoft, Yahoo and others acquire next to plug the holes in their video ad technology portfolio?

One of the more visible startups in the field is ScanScout. Based in Massachusetts, ScanScout, a new entrant to the race, claims to display relevant video ads based on the clips being viewed, similar to the way Google AdWords functions. It uses tags, metadata, colors, text and audio of a clip to identify video ads to be displayed. The organization demonstrated this by showing the advertisement of a sports car when cars were being discussed. ScanScout technology further allows customers to place additional ads so they appear as a conversation moves from one topic to another.

In addition to displaying keywords based ads, ScanScout offers advertisers to choose categories in which they want to show their ads. ScanScout gets a commission when Web site visitors click on a video ad. With ScanScout advertisers can limit their ads from getting associated with undesirable content.

PureVideo Networks, parent of StupidVideos.com, Blip Networks, parent of blip.tv, and NBC Universal (GE) are some organizations that have so far tried ScanScout and seem to be impressed with the service. Microsoft finds ScanScout’s technology “pretty interesting stuff”.

ScanScout’s key investors include Georges Harik, previously an executive with Google, where he assisted in the development of Google’s search technology. Other investors are General Catalyst Partners, Baseline Ventures, First Round Capital and Ron Conway, the Angel investor with a golden touch.

Scanscout looks like a possibility.