In comments over at the Spin Blog [sic], some readers are taking me to task for believing that YouTube would have made a lot of short-term money if they had ignored the user experience and adopted a pre-roll ad strategy. Make no mistake. When the 800-lb. gorilla in the space decides to open up video ads to a young demographic that's very tough to reach, the ad agencies and advertisers would quickly notice. That's when FUD would set in. Major advertisers who target young people would worry about a competitor gaining a foothold and they would strike pre-emptively, possibly looking for category exclusivity with an ad deal of significant size.
Pre-roll inventory is in demand. We're asked to look at it for a number of clients, and most are in the situation of wanting more targeted inventory than they can currently get. We all know what happens when demand outpaces supply.
One could make the argument that a YouTube entry into the pre-roll space would flood the market, but I doubt it, since it's highly likely that YouTube would be smart about selling it and would offer it in a targeted fashion. All someone would need to do is roll up inventory by category or by keyword (social tagging). Head over to a brand manager trying to reach young people and tell them you can give them all the inventory that is relevant to their category and they'll do a cost-benefit analysis against TV. Pre-roll will win on the numbers.
I know, I know. It's a hypothetical and we'll probably never know what would have happened, since YouTube doesn't want to do pre-roll anytime soon. But my educated guess is that if YouTube ran pre-roll, they'd probably make a lot of short-term money, which would peter out over the long term as they steadily lost their audience.