Mystery solved: How to make money with online video

Jim O'Neil

Everybody knows somebody who knows somebody who knows online video is going to be making a lot of people a lot of money in the next decade. But try and pin them down, and they'll hem and haw and start to spew an awful lot of coulda's woulda's and shoulda's.

CDNs are looking at margins shrinking faster than a cheap t-shirt and some OVP chief execs would trade their closest relatives for one big customer who'd give them some instant street cred among the five dozen or so of their ilk. Right now, there are more than five dozen OVPs and pseudo-OVPs in the universe, and that, too, can make for some endless blue light specials.

The year for online video ad agencies? Some good news, some bad there, the jury's still out.

Let me share with you a story of someone who's found the keys to the kingdom, who, while not exactly printing money, at least knows what a greenback is supposed to look like.

Listen to this:

"We've seen a 97 percent increase year-over-year in our online retail sales since we started using online video on our site eight months ago," Jason Arend, Director of Ecommerce, Online Marketing and Creative Services at PFI Western Store, told me on the phone last week.  "And we've seen a 133 percent increase in our web traffic during the same period. Video has put us to the top of Google video search results" and in Yahoo and Bing, PFI videos may make up 90 percent of the first-page video search results.

PFI is a single-store, 50,000-sq.-ft. brick and mortar location in Springfield, Mo.; it's the offspring of Preferred Farmers Incorporated, which began in 1975 selling everything you'd expect from a store so named, feed, farm supplies, boots, and the like. Now, however, it sells equestrian equipment, private label wines and Western wear. About 18 months ago, management saw the economic writing on the wall and decided to try some more aggressive marketing approaches, buying time on niche cable and satellite TV outlets and creating an in-house version of the Home Shopping Network that it pays for primarily with co-op advertising dollars. Getting it all done fell on Arend and his team of two. They used borrowed or rented cameras, set up a very basic open studio in the store, used sales reps from the companies they deal with and their own employees as experts to produce segments on boots, saddles and other merchandise. So far they've gathered 55 of the 26-minute episodes.

But, at Arend's urging, PFI took it a step further, going online and posting video on the company's existing ecommerce site.

It's been tough. Everything is produced in-house, there's no outsourcing, no freelance editing. Nada. Editing, encoding, all of it is done by Arend and his partner, programmer Myke Bates.

"We didn't have much of a budget to work with," said Arend. In fact, pressed a bit, he'll offer a number: "Zero. That was our budget. We had to come up with ways to deliver an enterprise level experience without paying for it, figuring that we'd move to a platform once we proved the program worked."

So, he and Bates, got creative. They used open source products like WordPress and Flowplayer, worked on the video in Photoshop and Final Cut Pro, encoding it as needed and hosting the video themselves on internal servers.

PFI now has about 500 pieces of unique video content up on the website. Most are a little longer than what best practices might call for; they're in the 2.5- to 3.5-minute range. Arend said that will change as they continue to ramp up the online component. "We will be rolling out a ton of new content next year that are short 30- to 60-second product walkthroughs made specifically for the web with less fluff than what's necessary for the television show" he said. He said the budget would be increasing somewhat, but not by much. "We know we can get the ROI on literally nothing," he said.

PFI has seen a 50 percent conversion rate in sales of products that have video, and only a 27 percent return rate; both significantly better than products without video, he said. And, he says, nearly a quarter of the daily visitor to the site are viewing videos, spending longer on the site and are showing more return visits.

"It's completely changed the way we think about online merchandising and customer engagement," he said.

Arend said PFI now uses video in almost all of its email campaigns--and they see two to three times as many click throughs when supported by videos; all of it is provided through RSS feeds, is syndicated to the iTunes store for podcasting to iPhones, iTunes and iPods, and is uploaded to about 10 of the top video sharing communities.

Arend said the results have proven to him--and to management at PFI--that online video is crucial to the performance of the retailer. In fact, he recently, bought two new Sony Z1U HD video cameras for the operation--its first major investment in online video production. "We still won't be spending too much on the creation of our online video content," he said. "But we will move forward. We have the numbers to justify it."-Jim