In a word, Google is starting a new "sponsored videos" feature on YouTube that will follow their well proven keyword/Pay-per-click (PPC) model, only now with videos instead of the familiar (and mostly ignored) Adsense text ads. This should be a great opportunity for those internet marketers already further along with their video efforts.

It should be pretty cheap to bid on the YouTube keywords at first, due to limited competition on them (the barrier to reasonably well-produced, well-converting video is still high, a lot higher at least than for text/image websites), and the click-through rates should be high because the videos blend right in as just more video content.

Note that the appearance of the still screen shot shown for the video before play will be crucial to attracting extra attention (like a well-done display ad). But in principle, nothing about this form of "ad" will make it so that YouTube viewers will mentally block them out – which usually happens even unconsciously after a short while, because the "ads" are, well, videos, the same thing that the user was looking for in the first place.

But if done right, it can be the equivalent of an advertorial, a marketers dream…

An important caveat applies here: You want to be sure to get the context right, i.e. deliver a video that will be perceived as relevant, or even value-added to the user’s keyword search. Else you will garner exponentially negative brand equity, as users will feel betrayed.

Again, I’d say Google just changed the game today as far as their ability to monetize YouTube is concerned (which was pretty poor so far), but it also should be a great avenue for internet marketers: Instead of wasting time trying to manipulate the YouTube view rankings, or having to "viralize" the videos some other way with a high failure rate (although if you can have that built in, the effect after the initial sponsored promo phase could be multiplied!), you just buy the "in".

Of course, you’ll still have to know what you are doing in terms of direct response marketing to get prospects to convert from the video, and make the numbers work reliably for you.

But this time even usually stalwart Micro-hoo cheerleader Michael Arrington of TechCrunch is saying that Microsoft may be going too far in its Machiavellian machinations to want to feast on Yahoo’s carcass.

Meanwhile David Kirkpatrick, senior editor of Fortune Magazine, argues that Microsoft will inevitably buy Yahoo, making the case that it has gotten personal for Redmond ever since Google wrested the crown of perceived "greatest and most powerful tech company" away from them.

But in arguing that Microsoft desperately needs Yahoo’s scale, Kirkpatrick falls into the same "scale will solve things" thought trap that is deluding Microsoft, and plenty of commentators throughout the blogosphere in both posts and comments as well.

Currently Google’s monetization advantage vs. Yahoo (confirmed, and likely similar vs. MSN/Live Search), that comes from their focused execution is somewhere around 50-100%. And it has NOTHING to do with "scale".

It has everything to do with the advertisers being able to afford higher average bids due to higher average conversions. Period.

Conversion is the only thing that ultimately matters to an advertiser. Scale is a straw-man. If YHOO or MSFT had equal or better conversion numbers for the same keywords, then advertisers would jump on that. The individual advertiser could care less about the total query share numbers, or total number of clicks, they only care about their ads converting when they are being shown and clicked on.

If you mail a direct response ad, do you care what total percentage of the region or nation that mailing list reaches? No way. You care about the conversion numbers, because if an ad doesn’t convert you can’t long afford to mail/run it. In search ads, if you fail to convert the clicks you get, as a small business you can be bankrupt before you know it. It’s that simple.

The total volume of searches or even clicks for a keyword on Google, Yahoo, or MSN/Live has little or nothing to do with it. It’s simply that at lower conversion rates on Yahoo or MSN/Live, advertisers have a harder time making the economics work for them.

Steve Ballmer should change his tune at the next Microsoft company meeting:

Conversion, conversion, conversion…

Few people in "big business" understand direct response models, but that is what search advertising ultimately is. It is NOT image advertising, because Google text ads, whether served with search results or on websites and blogs as "Adsense" ads, do not lend themselves to branding exercises like display (image) ads or TV commercials.

The old adage of marketers – "I know half of my advertising is wasted, the problem is, I dont know which half" – does not hold true for the direct response model that pay-per-click ads served with searches or with content are based on.

Any advertiser with a basic understanding of the Adwords campaign management backend can tell EXACTLY which half is not working, then tweak the keywords, ad copy, asf. and turn off non-performing ads/keywords in short order.

Myth #2: "Affluence Gap"

A similar oft-repeated myth is the following statement taken from an Alley Insider comment:

Google has [...] the most affluent search users. Therefore, ad buyers want their ad to be shown on Google, and the price is bid up.

It isn’t about the supposed greater affluence of the Google users at all, otherwise Yahoo could not outsource THE AD SERVES (NOT the searches) to Google and instantly get 60-80% higher returns. Note that we’re talking about the very same (Yahoo) search users as before.

It’s about Google’s superior monetization that is due to their fanatical refinements of ad serves and the search results themselves, AND the higher conversion rates that the advertisers are experiencing.

Now there is one other side to this that is in fact branding/positioning related: The context in which an ad is served. With Google, since Google = search, users are in a "searching for a solution" mindset much more so (on average) than on Yahoo (or MSN), where people may be for any number of reasons (social, email, IM, news, etc.).

This is the real draw-back of the portal strategy that Yahoo and MSN embraced, which by definition leads to brand dilution: You have no idea about the exact user mindset, and many if not most of the pages you serve create contexts that are counter to anyone clicking on ads.

How many ads have you personally ever clicked on that got served with your free online email? Your chat? Your Yahoo groups, etc.? Chances are, none. After a brief period of mental adjustments, you likely started to completely ignore those ads.

Even Google had to learn this lesson, when they found last year that the social networking inventories for Adsense ads (e.g. on MySpace) were monetizing far lower (because converting less) than expected: People just weren’t looking to buy when networking on-line. It’s two different things.

From the point of view of the advertisers, all that matters to them is per-click cost and conversion. That alone determines whether their PPC campaign is viable past a few days. If Yahoo could allow them to get workable numbers, they’d be more than happy to bid higher on Yahoo’s search inventories.

So it is this mindset context differential rather than any affluence disparity, or the vaunted "search share" scale myth, which gets even usually smart and tech savvy people like Alley Insider’s Henry Blodget to drink Microsoft’s Kool-Aid on why they need Yahoo’s search division.

As long as this myth persists, there will likely be no peace for Yahoo.