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In the beginning of May, YouTube (which has become the 4th most visited website on the planet according to Alexa Ratings) announced it was going to begin sharing ad revenue with its more popular, and prolific contributing members.  Specific terms weren’t disclosed, and the only thing clear was that (unlike competing site Revver) the revenue sharing would be selective and not available to the majority of contributors.

I looked more closely at that revenue sharing situation on May 8th and I wrote an article (available here) speculating that, as announced, the revenue sharing program was really just a small step in  Google/YouTube’s grander plan for video advertising.  It was my theory that Google was simply taking a measured step towards a much larger ambition to serve a more complete video advertising solution (both in the video stream, and also, with contextually appropriate ads wrapped around it).  At the time, I wrote “I would not be surprised it YouTube, flush with Google’s cash and infrastructure to assist it, isn’t working on trying to innovate in-video advertising the same way that Google did with search.  I’d see the limited revenue sharing arrangement as just a small step toward that goal.”

It’s only been a few weeks, but things happen fast in the technology world, and it’s looking more and more like my tea leaves were correct that day.  As of today, Google is running a limited test to allow a small group of advertising partners to run video ads inside of video clips (e.g. In-Stream or In-Video advertising). 

The test is being run as part of the AdSense program and revenue will be split (as is the case with other AdSense ads) between the website publisher and Google.  The ads will be no longer than 30 seconds and can be skipped by the viewer.  For now, the pilot program ads will run on web publishers embedded Flash players and not inside Google or YouTube hosted videos (though, if the pilot is successful, that will almost assuredly change).

If the pilot program does evolve to include YouTube as is expected, it’s also pretty likely that the ads will be highly targeted. In late April, in a story published by Adage.com, YouTube’s Chief Marketing Officer, Suzie Reider confirmed that YouTube was using the site as a focus group and collecting an enormous amount of data about the use of video content. Quoted in the article, Ms. Reider said “By Q3 [YouTube will] have a tremendous amount of metrics and data around every video.”

This Adsense Video pilot program is just the kind of innovation that could make Google’s purchase of DoubleClick start to look like a very smart move.  First, there’s the benefit of DoubleClick’s customer list: an enviable list of clients with big ad budgets, major media ties, and comfort with interactive and rich media online advertising.  Then there’s staffing: DoubleClick’s staff not only has a lot of expertise with the kinds of technology necessary to deliver more complex interactive ads but also,  their sales force has plenty of experience selling companies that spend big on CPM (impression based) rather than CPA (click-thru based) advertising.  Just the kind of ads video is going to require.  As a bonus, there’s also a lot of value that can be derived from having an existing relationship (for both CMP and CPA based ads) with MySpace.

There’s an awful large pool of members who include video content on their personal pages.  If In-Stream video ads are rolled out through YouTube there’s a whole new revenue stream that could come from MySpace page-impressions.  It’s a big market opportunity – one that could eat into TV ad spending as well.

Marry this possibility, with Google’s today announced purchase of Feedburner (story here) and it becomes immediately clear, just in case anyone was hazy, that Google is actively trying to stay ahead of the curve (and Microsoft and Yahoo) with Net advertising.   This pilot program, could very well be one of the pieces that helps them achieve that goal.