What could happen when China's largest online-retail company and the country's equivalent of YouTube team up? One possibility: an extreme form of product placement that encourages viewers to buy whatever their favorite movie star is wearing.
Chinese Web video company Youku Tudou is looking into developing technology that can recognize clothing, furniture and other products in a video, and deliver pop-up ads with links to buy the items on an Alibaba store, Victor Koo, the chief executive officer, said in a recent interview. He said the ads may resemble the floating text and links that sometimes appear within YouTube clips. Those annotations are added manually by the video's creator.
Getting bombarded by pop-ups in the middle of, say, Star-Lord battling aliens in "Guardians of the Galaxy" could get really annoying — product placement in films is bad enough — but the ads have serious potential to be effective. Digital advertising in China has some growing up to do. It's why many Internet companies there choose to make money through paid add-ons, such as digital stickers or other premium features. For example, ads make up just 8.3 percent of revenue for Tencent, the country's most valuable public Internet business. Youku has been working on advertising programs since 2008, Koo said. Yet, the company continues to lose money — to the tune of $95 million in its last fiscal year.
Alibaba, which is expected to soon hold the largest-ever initial public offering in the U.S., bought a 16.5 percent stake in Youku earlier this year. Koo expects the two companies will share information to improve their businesses, and he said Youku could benefit from the computing resources of Alibaba, which has a hosting service similar to Amazon.com.
"We really view Alibaba as a strategic investor," Koo said. "This will certainly accelerate how Youku Tudou can grow."
Koo demonstrated a buzzy app in Silicon Valley called Houzz as an example of the type of product placement Youku and Alibaba could accomplish together. The app lets users browse pictures of stylish living rooms, kitchens, bathrooms and bedrooms, and tap on furniture and fixtures for information on where to buy them. Koo said Youku could achieve something similar in video because the company has been working with Hollywood for years on payments and advertising initiatives. Youku has negotiated exclusive rights to stream some of the biggest movies and television shows, and works with the studios to organize premieres.
If that doesn't work out, Youku could double down on pay-per-stream products. After all, as Koo points out, Alibaba also has Alipay, the world's largest online payment processor.