Google already has about 40.8% of all online ad revenue according to eMarketer. Between Facebook, which  is hoping to increase its share of the online pie, and other tech giants like Microsoft, Yahoo and AOL working together in this arena, Google faces stiff competition. But the company is already making a move into another high-growth sector of online marketing, video.

Google’s move into video started a few years ago when it purchased YouTube. The YouTube division has gradually been developing an advertising business model that is bringing in about $1 billion of Google revenue. This could comprise as much as 5% of the firm’s total revenue this year. Google knows well that marketers will spend about $2.2 billion on online video this year.  This figure is small compared to what marketers spend on TV advertising but is expected to grow rapidly as more consumers tap their favorite shows and other content on the web instead of through their TVs.

Earlier this year, YouTube rolled out First Watch. When advertisers buy under this program, they can display a video to YouTube users on the first video they watch that day, even if the access comes through a link referred from a friend. In addition, the First Watch ads run only when users are accessing partner-provided content, not user-provided content. Officials note that the videos are generating a 1% click rate for marketers.

To move aggressively into video ads, Google hired Mr. Watson, the previous head of digital business strategy, at Procter & Gamble. Analysts see two goals being defined by this move. The company hopes to pull ad dollars away from TV in categories such as consumer product goods. And the company now has access to talent that understands how to use online video to enhance branding.

The online video ad category is already growing more competitive, but marketers may see YouTube as a unique channel that allows them to interact with consumers in ways that would be considered risky or edgy on traditional TV.

[Sources: Steel, Emily. Google’s Rivals Unite on Ads. WSJ.com 15 Sep. 2011. Web. 24 Oct. 2011; Miller, Claire Cain. YouTube Makes the Case that It Helps Build Brands. NYtimes. 14 Oct. 2011. Web. 25 Oct. 2011; Elliott, Stuart. YouTube Extends Plans for Ads Before videos. NTTimes.com. 23 May 2011. Web. 25 Oct. 2011]