Google is launching a new initiative (very very quietly): they’re adding video ads to Google’s own search result pages.

This doesn’t come as a surprise; if anything, it’s way overdue. Google introduced Video AdWords back in mid-2006 but confined them to its “content network”. This week’s news indicates that Google is now going to start displaying these ads on its own webpages, as well.

The real story here is the remarkably slow evolution of the video advertising medium. Google, which ought to be the 800-pound gorilla, has been surprisingly slow to deploy a video complement to their own ad network (and to monetize their YouTube purchase). In terms of market-based innovation, they lag behind aggressive startups like Tremor, VideoEgg, YuMe, and Broadband Enterprises.

We think Google is taking its time because video advertising is a very complicated product; it’s really not very analogous to text AdWords, which has probably hampered their rollout. Moreover advertisers are generally still looking or experimenting rather than buying in volume (partially for lack of inventory). Most importantly, Google certainly hasn’t developed internal consensus on the relative importance of this new potential market relative to their existing cash cow. And because the online video advertising market has yet to generate revenue in proportion to its hype, it’s all too easy for them to slip into complacency.

Sounds like a classic Innovator’s Dilemma, doesn’t it? GOOG’s leisurely pace is making it increasingly likely that they’ll lose technology leadership in this space by the time the market is large enough, financially, to justify a significant investment.  The problem with that is that waiting for the market to mature may leave them too far behind the leaders to catch up through organic growth.  If they haven’t made a breakout move by 2009, they’ll be forced to pay a high premium to acquire a startup competitor (or two) in order to get their hands on enough “video DNA” to compete effectively in the space.

Filed under: Google, market size, strategy, video