Early this year, Mahindra & Mahindra(M&M) came to truly appreciate the exactness and efficiency of online marketing. Under pressure to boost sales in a cautious market, the automaker aggressively advertised the debut of the Xylo and the enhanced Scorpio on select websites. The former targeted buyers seeking value for money in a 40-second clip; the Scorpio had a 25-second video aimed at the lifestyle-vehicle buyer. Jivox, a Bangalore-based start-up, was the puppeteer that controlled the ad campaign. Working at the back end, the online-video company delivered the two ads to their respective audiences. And how! Unlike with television spots, where advertisers book fixed time slots for their ads, online videos can be played as needed—because they are driven by measurable user behaviour. Jivox was able to provide the Mahindras with information on which audience would be active at what time and on which websites. This helped the auto company’s marketing team to instantly make adjustments and target the ads at specific audiences at specific times. For the M&M team, the price of producing and delivering both ads was much lower than playing a single ad on television. It made tremendous sense during an economic slowdown—by getting more bang for the marketing buck.

Tracking ad-views on new media—the Internet—and varying advertising based on user behaviour somewhat became the norm in India in the first three quarters of 2009. It was an activity that found buyers across the automotive, consumer durables, lifestyle FMCG products, IT and telecom-service sectors.

“Internet ad platforms have the advantage of measuring each ad, which television doesn’t,” says Diaz Nesamoney, Founder & CEO of Jivox. To this end, online-video advertising networks are developing tools that measure video ads and supplying them to buyers. “Remember, in India, the Internet tends to represent the most affluent and influential purchaser in the market. So, it is a great medium for advertising white goods, automobiles and products targeting young adults,” he says.

The Next Big Thing?

If the slowdown marked the birth of Internet-video advertising in India, the auctioning of 3G spectrum (and a potential surge in smartphone usage thereafter) is expected to take Web marketing to its next stage of growth here. And at least four venture capital funds think the medium’s time has come. Nexus Venture Partners has just announced its second round of funding, to the tune of $4 million, in Vdopia, an online video-ad platform. Last December, it had provided Vdopia with seed funding said to be in the region of $3 million.

Tracking ad-views on the Internet and varying advertising based on user behaviour became the norm here in the first three quarters of 2009.

Jivox itself got investments worth $10.7 million from Opus Capital and Helion Venture Partners in May 2008. A couple of months later, IDG Ventures India invested in Ozone Media Solutions, an online video network established in 2006. Investments of this order have helped each start-up rev up for the opportunity thrown up by the slowdown. “At the end of the day, an online video platform is selling its technology,” asserts Suvir Sujan, co-founder of Nexus Venture Partners. “Video technology requires you to insert high data-bytes into a video that is playing on somebody else’s server, and to provide that rich data seamlessly.” That’s one of the things firms like Jivox and Vdopia excel in.

For an online video ad network, it is critical to have a stable platform that is highly scalable. That is, it should be able to take a high number of hits without crashing. “Question is: can the platform scale up to 2-3 million views and yet be stable? And can they provide data that will allow an advertiser to analyse who is watching their videos across publishers (websites)?” Sujan explains, referring to the strengths Nexus identified in Vdopia. A network of publishers is an added strength. If publishers are comfortable with the technology and sign up, the online ad firm can develop a large network. “That, in turn, attracts more advertisers,” adds Sujan.

Typically, a third of TV ad spends in India are targeted at urban households (metros and semi-urban centres), says Saurabh Bhatia, co-founder and Chief Marketing Officer of Vdopia. “That TV audience is about 80 million in India, according to TAM Media Research. So, as a media, the Internet is comparable because it is 60 million strong,” he adds, conceding that the Web still cannot erode chunks of TV ad spends. “But the number of online advertisers has certainly increased. Now, the challenge for us is to increase spends per advertiser.” So far, the two firms appear to be doing quite well for themselves. Jivox has about 5,500 clients overseas and about 50 in India. Vdopia has clocked 75% growth quarter on quarter this year.

Web-ad Ecosystem… Loading

Broadly, the online video ad eco-system comprises three groups of players. First, are internet video-ad platforms like Vdopia and Jivox, who oversee delivery of video ads on Web media. Next come digital agencies that identify online networks for advertisers, as well as content opportunities on Web media like Rediff for online networks to leverage. Advertisers, who want brand visibility, make up the third group.

Internet advertising platforms have the advantage of measuring each ad. That’s something television can’t do.Diaz Nesamoney, Founder & CEO, Jivox

Even if it means reaching out to a niche audience that frequents websites in India, firms like AOL and Disney don’t want to miss out on cashing in on that attention anymore. India accounts for a large amount of traffic on the top five Internet websites, including YouTube and Google, notes Siddhartha Roy, COO of Hungama Consumer Business & Allied Services, referring to the business opportunity for its digital agency. “If the US accounts for 33% of the traffic on Yahoo.com, India accounts for 10%,” he says. Among websites browsed, Yahoo is ranked third in India. That’s exciting for online video networks. The challenge for them is: how to monetise this traffic.

Hungama, an entertainment portal, has widened its presence across the eco-system. After acquiring IndiaFM (which is now Bollywood Hungama) in 2000, it has been able to create micro-sites for up-and-coming films and attract advertisers. It also has a mobile entertainment vertical, which will be crucial when 3G ushers in mobile TV. “We have access to content as well as to publishers like Fashion TV,” says Roy. Its digital agency, which drives the traction between in-house content providers, advertisers and publishers, employs almost one fifth of the 500-strong Hungama Digital Media Entertainment. Other prominent digital agencies include WPP Group M, Lintas Group, IContract and Neo.

India accounts for a large amount of traffic on the top five websites. It makes up 10% of Yahoo’s traffic.Siddhartha Roy, COO, Hungama Consumer Business

For video-advertising platforms, there is no clear pattern in terms of a business model. Vdopia thrives on pre-rolls (advertisements embedded before an online news clip or music video) on websites like NDTV.com and CricketNext. The revenue generated moves from the advertiser to Vdopia’s pockets, a slice of which goes to the publisher. It also serves ads using video banners and innovations like dynamic-skin branding (DSB). “With DSB, we can serve ads on the skin of the media player, which we can change depending on the user,” says Bhatia of Vdopia. “This can result in about 60% increase in revenue for the publisher because such an ad space was not available on its website otherwise. It has been made possible by our media tool.”

Jivox, which was founded with a seed fund of $1.5 million in San Mateo, California, has three sets of advertisers. The first is what it calls white-label publishers like CBS in the US and Zee News in India. Jivox gets a slice of the revenue that the publishers derive because it provides the back-end support to serve the ads. “We have around 25 white labels in the US, and recently added one in the UK,” says Dinker Charak, Jivox’s Director for application engineering and partnership. “Each such white label can own anything from 3-15 sites. In India, the publisher list is driven by an advertiser’s media plan. We work with 100 or more sites at any given time.” The deal size in India is considerably lower vis-a-vis white label publishers.

The second set of Jivox’s prospective advertisers is focused on SMEs (almost entirely in the US). Here, the start-up provides access to local publishers and enables up to 500 advertisers to plug their advertisements into those publishing websites. Ad buyers can range from car dealers to local gymnasium owners. Jivox also enables them to create their ads on its website by providing access to its stock videos. “In the US, the typical plan is $250, and it is common for advertisers to go for subscriptions of six months to a year,” says Charak. These two sets contribute 60% of its revenue, which is primarily from the US. The rest is from advertisers in India, where it bags the revenue and shares part of it with the publisher.

“By the time everybody says, ‘India is hot’, there will be 20 competitors in the market,” laughs Naren Nachiappan, MD of Jivox. “We are in India when people think it’s too early, which will help us establish a leadership position,” he says. If video advertising on desktop is in its early stages, it’s premature for mobile Internet and gaming, which will offer greater potential to target buyers. The digital approach is still new in a country where advertising has grown on the television platform, reaching out to five or more distinct buyers per household.

Unsurprisingly, these web start-ups are behind the US online market, where online video-ad platforms like Brightroll and SpotXchange have expanded since 2005. Across all geographies, online video advertising is still taking baby steps. According to eMarketer Digital Intelligence, US online video spending will account for only 4.3% of total online ad spending, and a mere 1.6% of TV ad spending. And that’s in the most mature and biggest Internet market.

If there is anything driving the trend in India, it is optimism about being a fast-growing mobile phone market, where smartphones are expected to get cheaper in a 3G environment. For now, though, it’s the slowdown that’s given online video advertising its biggest push in India.