Viral Ads: It's an epidemic
Hit videos reach millions. But Fortune's Devin Leonard asks - can this ever be a real business?
By Devin Leonard, Fortune senior writer

(Fortune Magazine) -- One of the big hits to emerge on YouTube this summer was Lonelygirl15, a pouting teenager webcasting from her bedroom who turned out to be an actress hired by three ambitious wannabe producers with plans for an Internet film project.

But Lonelygirl15 wasn't the only YouTube smash. Another was "Tea Partay," a music video by Prep-Unit, three well-scrubbed, upper-class New Englanders spitting rhymes Beastie Boy - style about the joys of eating finger sandwiches, playing croquet, and drinking Smirnoff Raw Tea, a flavored malt beverage.

Meet the stars of YouTube, the undisputed king of online video sharing. Can they monetize this craze? (more)

Like Lonelygirl15, the three guys in P-Unit are thespians. Unlike her, they're obviously selling something. But as with any good viral-ad campaign - the most interesting marketing trend of the moment - there's a bit of mystery surrounding their success.

The video was created by the New York office of Bartle Bogle Hegarty, a respected British ad agency. However, Mark Breene, vice president of Smirnoff Vodka North America, says the distiller didn't post the ad on the wildly popular video-sharing site, where it has been viewed more than 1.3 million times, inspiring several much-watched spoofs involving sock puppets and lip-synching junior high school types. He says the company simply put it on one of its websites, and lo and behold, visitors were so taken by it that they put it up on YouTube themselves. How viral is that?

Never mind that Bartle Bogle Hegarty clearly conceived "Tea Partay" with YouTube in mind. It is an unabashed homage to the clip that put YouTube on the map, "Lazy Sunday," the Saturday Night Live sketch in which Chris Parnell and Andy Samberg rap about doing the sort of activities that would make 50 Cent's toes curl: eating cupcakes, discussing whether to get directions from Google Maps or MapQuest, and going to see a matinee of The Chronicles of Narnia.

Madison Avenue has always tried to create infectious ads. Think of those beer commercials with catch phrases that some of your more tiresome coworkers repeat around the water cooler. But viral marketing truly came of age with the Internet.

Marketers discovered that if they came up with a really good beer ad, consumers would e-mail it to their friends. That was a revolution at the time. Now it seems so Web 1.0. In the age of user-generated content sites like YouTube, MySpace Video, and Google (Charts) Video, consumers and advertisers are able to upload ads that can be shared virally by millions of people.

This means some interesting twists for the business of advertising. A successful viral ad is distributed widely for free - Smirnoff didn't pay YouTube a dime. On the other hand, the advertiser has no control over where the message winds up. (There's always the chance that it might appear next to a Hitler video or a booty clip.)

And here's an intriguing question: Can YouTube and Google Video figure out a way to make this a business? If so, could they become the web's equivalent of the broadcast networks?

These are the sorts of riddles that keep media moguls awake at night. YouTube and its brethren turn the industry's hierarchy upside-down. Advertisers usually sit at the top because they provide most of the funding for television broadcasters, magazines, and newspapers. As long as advertisers are willing to write checks, these traditional media outlets are happy to let them dictate when and where their ads run. Consumers, at the bottom of the hierarchy, don't have much say as far as advertising and programming are concerned.

In user-generated content sites, the concerns of the advertisers are secondary to those of the consumer. Sites like YouTube can't survive without their videos. The last thing founders Chad Hurley and Steve Chen say they want to do is have advertisers plaster the site with pitches that alienate users. Hurley and Chen are reserving the top right corner of YouTube's home page for paid videos and creating "brand channels" for clients like Warner Music.

They hint that they are working on a mind-blowing new advertising model that may eclipse these efforts. But they aren't any more specific, and many ad agency people wonder if the founders really have any idea how to turn advertisers like Smirnoff, who are freely spreading viral messages on YouTube, into paying customers.

Then again, Madison Avenue is also having trouble coming up with a viral advertising model. Like the YouTube founders, ad agency people speak worshipfully about the users of these sites. They fear angering them by marketing to them too overtly.

Rich Silverstein, a founder of Goodby Silverstein & Partners, the San Francisco-based agency famed for the "Got milk?" campaign, says his agency has yet to actually pay to post a video on YouTube. It's far better, he says, to turn these people into your distributors by making ads so great that consumers pass them around and upload them to such sites.

"If it's worthy, if it's pass-around worthy, it's going to do good for your brand," Silverstein says. "If they are not passing it around, it's crap. It's useless."

The trouble with this from an advertiser's standpoint is that it's like pop music: How many people have ever been able to figure out the formula for a Top 40 hit? Silverstein, for instance, points to two short web films that his firm made for Specialized Bikes. One of them, a faux news report about a biker who outraces a police car, was viewed 82,000 times on YouTube. The other, a clever cartoon about a hapless mountain biker who ignores a danger sign and is clawed by a bear, gnawed by piranhas, struck by lighting, and chopped by a woodsman's axe, has been viewed 5,000 times.

It may be good advertising, and it may be distributed for free, but it isn't much to crow about when YouTube attracts 34 million unique visitors a month, according to Nielsen.

Kevin Roddy, executive creative director of Bartle Bogle Hegarty, says, "I believe if you want to be successful in the world of viral, you need to play by the rules of entertainment, not the rules of selling. A lot of brands might have difficulty with that. But as soon as you [sell], people say, 'Well, I'm not going to do your work for you.'"

The agency got it right with the "Tea Partay" video. But it had less luck with "Boot Camp," a short for Unilever (Charts)'s Axe, the deodorant that promises with a wink to render its young male customers worthy of hookups with Maxim cover babes. That would seem to offer endless possibilities for a YouTube hit. But since it was posted on YouTube in March, the spot - in which a fetching, bikini-clad instructor drills young men in preparation for spring break - has been viewed just 1,970 times.

Surely advertisers want to see more consistent results. There was some complaining recently when a paid ad for ESPN's Monday Night Football appeared on YouTube's home page. "Why do I have to see the vids like this at the top of YouTube's log-in session?" complained "frontiera." But it got 238,759 views in four days. "I hope YouTube makes plenty of money on these ads to keep themselves in business," wrote "malice604."

Apparently YouTube users aren't as hostile to marketing as both Madison Avenue and the site's founders seem to think. Could it be that viral advertising isn't so mysterious after all?