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There are plenty of people willing to argue that online video will kill TV in the not too distant future. Many of these same people, however, are quick to point out that online video has a monetization problem today – which is absolutely true. Despite attracting sizable and highly engaged audiences, advertiser are only willing to pay a fraction for online ads of the rates they regularly pay on. At the same time, subscription and pay-per-view business models have not yet caught on to the extent necessary to fund all of the video content being published across the Web.

Fuisz Media, which offers commerce-enabled interactive video technology, has launched one of the most compelling solutions to this problem to hit the market to date. Not surprisingly, the Los Angeles company has been turning heads throughout the premium video community, previously announcing a partnership with ZEFR and today adding to the list Awesomeness TV, a newly-acquired division of Dreamworks.

Plenty of content companies have tried to solve the monetization problem facing online video by increasing production quality. This is done in the hopes of attracting premium advertising rates, but so far has met with little success. Worse, the standard pre-roll and interstitial ads, or commercials, are annoying and detract from the user experience. Do you enjoy watching 30 second ad for something that you don’t want before watching a 30 second video about cats chasing laser pointers?

Another common avenue is for companies to negotiate paid product placement deals and then promote products directly within the video. While these deals have shown promise, advertisers have again proven hesitant to spend big dollars without a clear understanding of whether or not they actually work.

The Holy Grail of online video monetization has long been native ecommerce, where viewers can seamlessly shop for the items that they see in a video. Companies like wireWax, Subblime, Joyus, and others took the first step toward this promised land by offering simple tagging or annotation technologies that would link out to third party ecommerce platforms. But the process of tagging videos with these shoppable links has always been heavily manual. The tags are distracting, and overall experience left a lot to be desired.

Fuisz has taken shoppable videos and advanced them several generations ahead of what’s in the market today, says founder Justin Fuisz. Fuisz Media uses proprietary computer vision technology to track images from frame-to-frame, making them clickable at any moment throughout the video. To do so, Fuisz hired what he characterizes as four of the world’s foremost experts in machine vision, moved them all to Los Angeles, and spent the last two years building the underlying technological framework. It’s only in the last few months that the platform has been available for commercial use.

For example, if a woman walks into a scene wearing a JCrew top (and JCrew has paid to advertise in that video), then clicking on the top at any point will give the viewer the option to purchase the item or browse JCrew’s ecommerce site. The same is functionality can be added to a bottle of Tide detergent, a decorative lamp, or any other on screen item. Critically, in all cases the video appears unaltered and there are no intrusive links or flags , until the viewer clicks to engage.

A simple message stating “This video is interactive. Click on people to learn more.” clues in the audience to the underlying technology. Through more than 3 million YouTube video views to date, Fuisz has seen an astronomical 24 percent click-through rate.

(sample Awesomeness TV video with Fuisz Media technology)

It’s not just commerce that will benefit from this technology. Fuisz can be used to drive traffic to any content or site. For example, clicking on a the face of a popular character within a video can link to additional content starting that actor, or to their Facebook or IMDB page, or any other destination of choice.

The real magic, however, is that Fuisz allows content creators and advertisers to make videos clickable. The magic is that they make it possible to add a dozen or more clickable items to a video in a matter of minutes, which are then intelligently tracked throughout the video.

Fuisz may be the best solution to date, but there is an argument to be made that it is still interruptive to pause a live video and direct the viewer to another new browser tab. They key to minimizing the negative impact of this fact is to ensure that the expectations of both the consumers, the content creator, and the brand are set properly – something that Fuisz does well.

Fuisz monetizes its platform through collecting a revenue share on CPA (cost per action) advertising fees paid by the brand or the content producer. The technology is designed to work on YouTube or any other online video platform, meaning that content creators can also make videos interactive on their owned-and-operated websites. And because it’s browser-based, the technology works equally well on tablets and smartphones. The company has also built a full, in-video commerce experience that eliminates the need to click through to a third-party site to begin shopping.

The company has been bootstrapped to date by Fuisz and his family — which includes two older brothers, both patent attorneys (or in other words this thing is heavily protected) – and a Renaissance Man father who, according to his son, may be the real “most interesting man in the world.” The company recently received its first outside investment from Science, Inc. and is in the process of raising a larger institutional round of financing.

Fuisz has gone a long way toward addressing the key shortcomings with traditional online video advertising. Chief among these is that it replaces interruptive pre-roll and interstitial ads and provides advertisers with an ability to “close the loop,” by driving the consumers to take a measurable action.

It’s unlikely that the company will be able to maintain its lofty 25 percent click-through-rate – which is surely buoyed by novelty. But it’s conceivable that the technology will continue to outperform traditional ad units. If this is the case, it suggests an environment where brands would be far more willing to spend real dollars advertising within online video.

Justin Fuisz has his work cut out for him to make Fuisz Media technology ubiquitous enough across the online video landscape to make this a reality. But based on early results, it appears he has the attention of both Hollywood and Madison Avenue.

[Original image courtesy recombiner]