Here's a great example of how online video advertising is opening up a new world of opportunities for savvy marketers: office supply giant Office Depot is dynamically creating customized video ads that are retargeted to visitors of OfficeDepot.com for specific products they browsed or purchased. Office Depot is leveraging SundaySky's "SmartVideo" and other technologies in order to re-engage visitors and drive new purchasing. Office Depot's Nicole Fraley explains how this works in the video interview embedded below, and SundaySky's president and CRO Jim Dicso recently provided me with some additional details.

The process starts by Office Depot following visitors' on-site behavior using cookies, a widely-used tracking technique. Office Depot has a catalog of 80K product videos, which are the basis for 15 and 30-second pre-roll ads that run on publishers' sites, retargeted to its cookied visitors (example here). Things get more interesting as Office Depot dynamically updates the ads with features like customer reviews and specific discounts. As a result, viewers not only see a pre-roll for a particular printer, for example, browsed at OfficeDepot.com, but also get special offers and other strong calls-to-action based on their own recent actions.

To further boost the ROI, rather than buying pre-roll inventory at set CPMs, SundaySky has created a real-time bidding engine that ties in with exchanges, ad networks and other inventory sources to acquire only at prices that are economic based on an algorithm it has developed. One of the algorithm's inputs is the amount of time since the user's site visit; the longer it's been (and therefore the less likely the ad will convert to purchase), the lower the real-time bids it will recommend. In this way, the media buying process is fully integrated into the campaign objectives.

As Nicole reports in the video interview below, all of this translates into an improved ROI vs. other online display or re-targeting campaigns that Office Depot is running (the company uses an ROI ratio of ad spending to sales, with certain targets by ad channel). Nicole notes that even when the ads run in high-quality entertainment sites like Hulu, conversion rates have been strong. No doubt the more personalized nature of the ads plays a big role in re-engaging users. Recognizing its success, Office Depot won a Excellence in Enterprise Video award at last month's Business Video Expo.

Jim said that Office Depot's experience has led SundaySky to sign a number of other e-commerce companies for similar campaigns, though he's not yet ready to disclose names. Jim notes that whereas video ads have typically been for branding purposes, with this new approach they are seen as performance-based, which helps marketers allocate spending based on data-driven ROI metrics. The key challenge here is that video inventory is expensive comparable to display, which means conversion has to be substantially better in order to create value.

The key takeaway here is that the combination of online video advertising and other technologies is allowing marketers to innovate in how they reach and engage their target audiences. The old days of "spray and pray" advertising are giving way to much more sophisticated approaches. As users shift their video consumption online, marketers will have even more opportunities to be creative and effective.