Watch this video from Google AdWords to learn how it works:
Not just for the big guys!
Since Google bought YouTube, video ads can now be managed through your AdWords account. similar to graphic display ads, they can be placed based on search criteria, interest, or other demographic metrics. You only pay for video ads when they are watched for more than 30 seconds, or if there is a click to your landing page.
In addition, the excellent metrics and testing available allow an advertiser to easily and effectively advertise within only the area and with search terms that bring the most qualified prospects to your business.
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