The Wall Street Journal reporting this morning that Google’s Push to Sell Ads On YouTube Hits Snags.  The problem, in my opinion, lies more with Google/YouTube than with the market.  There’s plenty of real innovation happening in online video advertising — just look at VideoEgg and Tremor Media for example.  And we speak every day with leading retailers who are intrigued and eager to explore the world of video advertising (and they have real dollars to deploy).

The problem is that YouTube’s DNA is that of a video sharing site, and Google’s DNA is in search.  Major acquisitions can be real trouble when a strategy shift is required and there’s no clear leadership to drive change.  Perhaps Tim Armstrong (a solid leader) can rally the troops around a new, advertising-centric model.  In that case, YouTube can take advantage of its pole position in this race.  Or, YouTube can continue to be Flickr for video (as Chad Hurley put it just two weeks ago)… while real innovators race past them to claim the lead in online video advertising.  Either way, the race is ON!

Excerpts from the WSJ article:

Wringing ad revenue from YouTube is proving to be a challenge for Google Inc.

Although users of the popular video-sharing site view clips more than one billion times on most days, the site hasn’t been as popular with big corporate advertisers. World-wide revenue from YouTube ads has fallen short of Google’s expectations this year, and is likely to total about $200 million for the full year, according to two people familiar with the matter.

YouTube is critical to Google’s campaign to extend its advertising reach far beyond text ads tied to Web searches, its revenue powerhouse. Google wants to sell more video ads and display ads on YouTube and elsewhere. It also wants to crack the television, radio and newspaper ad markets. Its target: the 90% of global ad dollars that don’t currently flow to the Internet.

[...]

Tim Armstrong, Google’s head of advertising and commerce in North America, is helping to lead the diversification push. When he dug into complaints from salespeople about Google’s system for selling YouTube ads, he uncovered another part of the problem: a sales system hamstrung by inefficiencies.

[...]

Twenty months after Google bought YouTube for more than $1.7 billion, Mr. Armstrong and his colleagues have begun to untangle the problems with its advertising operations — which generated 98% of Google’s revenue in the first quarter. The initiative is code-named “Project Spaghetti.”

The effort could affect how successful Google is at expanding beyond advertising tied to online searches. If Google is to maintain its torrid growth rate in the years ahead, it needs to tap other forms of ad revenue.

[...]

Google plans to begin accepting “preroll” and “postroll” ads, which will run before and after some YouTube video clips, according to one person familiar with the matter. The plan under consideration, this person says, would give companies that post video clips the option to sell such ads, and share the revenue with Google. YouTube has long forsworn such ads because consumers don’t like them. But advertisers consider them highly effective.

Filed under: Google, YouTube, market size, online advertising, video