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So, the news is out and everyone’s adding their two cents. Google (NASDAQ:GOOG) will be introducing overlay ads on YouTube.

I’ll say a few things (Full Disclosure: We partner with YouTube as a content producer).

There’s nothing revolutionary about what Google is doing in inserting video advertising with YouTube. Google seems quite content with its place as the leader of search and is willing to give up the video lead to someone else, thinking it can always buy them afterwards. But, I don’t think it takes something radical.

After all, serving up text ads alongside organic results propelled Google to where it is now, and that was already being done by GoTo and Mamma, amongst others (I worked for Mamma in 2000)

Then again, there are two major elements: YouTube’s size - at 3B streams per month - is as dominating in video as Google’s search queries were in search once it pulled away from its peers.

Last year I ran some numbers on how much YouTube should be making per month ($7.5M) just off display ads, but it in fact sold $15M in all of 2006. Now that it has signed licensing deals with content owners, it can turn it up with more “effective” (read intrusive) ads, and charge more. Today, thankfully, Henry Blodget ran some numbers and while his range is pretty wide, it does offer guidance on what might happen. Ain’t it nice to have a former analyst blogging amongst us?

With avoiding pre-rolls, YouTube is willing to risk not being at the forefront of video ads if it allows it not to rock the boat with users.- Why do I say that? I think content producers who use YouTube are on the same page: use the more effective (read high-paying) ads like intermericals and pre-rolls so long as it’s not overkill, because that’s why we don’t mind giving you content. Sure, the branding helps, but we want revenue. And to get revenue, we need ad formats that advertisers want.

Will advertisers want overlay? Who knows. But Google did not apply display and CPM pricing models to search… so maybe an overlay will work, time will tell.

Ultimately though, remember one thing: until now Google had very little demographic data on its users but it had all of the click stream data. Effectively, it had a lot of behavioral data, but by buying YouTube, where most viewers log in and create profiles, it can offer marketers video inventory based on content and demographics, that makes Google far more powerful.

Donna Bogatin argues that this all makes YouTube less soulful… something that began when it created a tiered-system. I am biased since I’m in that supposed elite, mind you, but I think YouTube is so vast, so sprawling, that most users don’t care about the tiered system, and I’d doubt it UGC uploaders frankly expect advertisers to view their content as they would the content of a professional traditional or new media content producer. But, alas, I am very biased.

Next, maybe YouTube could do something about the comment spam. Sheesh.

Source: Google to YouTube: Show Me The Money