By Jon Fortt
August 24, 2007

From initial appearances, users of Google’s (GOOG) YouTube video service are in full revolt over the company’s decision to put ad overlays into videos. But really, that’s not the case.

YouTube this week unveiled ad units for video, called InVideo ads. After months of testing, Google thinks it has found an ad format that can satisfy marketers without alienating video viewers. In the new ad format, a translucent pane appears for 10 seconds on the bottom fifth of the video screen; click to see the ad, and the video pauses and the ad plays. When the ad is finished, the video picks up where it left off.

As is their usual practice, the YouTube team put up a blog post soliciting user feedback on the new InVideo ad format. Reaction was swift and mostly negative – users threatened to leave unless YouTube backs away from the ad format. So far the blog post has more than 745 comments.

Look closer though, and it becomes clear that this is no wide-scale rebellion. Most of the comments are spam – users who post the same message dozens of times, usually in all caps, in a desperate bid for attention. Several other posts have nothing to do with in-video ads; they’re complaints about YouTube’s latest update to its feedback system, which, among other things, tries to minimize the effect of comment spam. And finally there are the comments about in-video ads, many of which are misinformed.

Many of the commenters seem to assume that YouTube will begin inserting ads into all videos; that’s not true. At least to start, YouTube will serve ads only into the videos of people in the “YouTube Partner Program” – people whom YouTube has invited to participate in a revenue-sharing deal. YouTube users can apply to join the partner program through a form on the site. Furthermore, YouTube partners will get ads in their videos only if they ask for them. “Our users are not shy about telling us what they like and what they don’t,” a YouTube product manager said in an e-mail to the Associated Press, “so it behooves us to be careful.”

The YouTube ads are of critical importance to Google, which needs to figure out a way to monetize online video and stay ahead of Yahoo (YHOO) and Microsoft (MSFT) in the fight for online ad dollars. If Google’s ad format works on YouTube, it could dramatically alter the online video landscape by attracting advertisers to Google’s video offerings, encouraging higher-quality video creators to work with Google, and generally improving the quality of user-generated content.

If the format is successful enough and YouTube can properly leverage its large audience, it might even manage to attract cooperation from mainstream Hollywood players like Viacom (VIA), CBS (CBS), NBC (GE) and others who today see YouTube as a threat to their ability to make money from their content. Those companies are now working on their own video initiatives to combat YouTube, but it’s not clear whether they are willing to put together a single online ad serving platform to make placement convenient for advertisers and to rival Google’s AdSense.

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