The Silicon Valley company is creating the video marketplace within its DoubleClick Ad Exchange, Neal Mohan, a Google vice president for product management, said in an interview. It resembles existing exchanges used to sell graphical and interactive ads, a category known as display.
Such exchanges allow companies to bid to place ads across different websites in real time, or right at the moment a user has called up a particular Web page.
If the experience in display ads "is any indication, the promise of video for publishers is pretty tremendous," Mr. Mohan said.
Many ads are still purchased ahead of time through negotiations between individual websites and advertisers. But the real-time exchanges, which are growing in prominence, help publishers avoid having unsold space, particularly for the less-valuable areas of their sites.
The move by Google, which was widely anticipated, comes amid activity by several smaller companies, including Adap.tv Inc. and Brightroll Inc., to establish similar real-time-bidding marketplaces for video ads and take a cut from each transaction.
Online video advertising, which includes commercials that run before a video is played as well as text ads that appear on the video while it is playing, is a nascent but growing market, reaching nearly $1.5 billion in the U.S. last year, said research firm eMarketer. This year video ad spending in the U.S. will be about $2 billion, the firm said, while the overall U.S. display-advertising market—which includes graphical, interactive and video ads—will be $10 billion.
The growth of the online video-ad market is constrained by the fact that there aren't enough high-quality online videos to satisfy advertiser demands, said Terence Kawaja of LUMA Partners, a boutique investment bank.
Google's YouTube and online video site Hulu LLC are among the leaders in terms generating revenue from video ads in the U.S., industry experts say.
Google's exchange for graphical ads is used by companies such as Demand Media Inc. and Time Inc. Demand Media, which produces video content, currently sells video ads directly to advertisers as well as through exchanges run by Adap.tv and Adconion. Steven Kydd, a Demand Media executive vice president, said he was enthusiastic about trying the forthcoming Google video-ad marketplace.
At Cadreon, a unit of InterPublic Group of Cos. that helps advertisers such as Microsoft Corp. and MasterCard Inc. buy ads on the Web, less than 10% of clients' current spending involves video ads, said Cadreon Chief Executive Brendan Moorcroft. But that slice is expected to grow to around 25% within the next couple of years, he said.
Cadreon is currently using technology from Adap.tv to buy online video ads on that company's marketplace and other exchanges. Advertisers can target the ads to specific groups of viewers on sites such as USAToday.com, based on data about the viewers' demographics and interests.
"In the future most of the $70 billion spent on television advertising today will be traded on exchanges like ours," said Amir Ashkenazi, Adap.tv's chief executive.
David Karnstedt, chief executive of online marketing firm Efficient Frontier, is a strong proponent of Google's ad exchange, which he uses to help advertisers buy display ads. But Mr. Karnstedt added that Adap.tv "is in a good spot" as a "strong alternative for publishers who might not want to work with Google and share data" about their users.
Google's Mr. Mohan said the company has "incredibly strong relationships with publishers" and already helps them generate billions of dollars in revenue through the sale of display ads.
-Amir Efrati, Wall Street Journal
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