The name of the game in online video is integrating ads in ways that are unobtrusive and contextually relevant. These are simply rules we have to live by, as standards have been set for all online media — even before video came along. We can mostly thank Google for that.

We’ve spent lots of time talking to companies that integrate different forms of online video advertising in lots of different ways. And there’s a great deal of experimentation going on to test users’ threshold for viewing ads.

There are pre-roll ads of course — the easiest way for Madison Avenue to repurpose existing creative and the highest CPMs to date. More recently we’ve seen things like in-line advertising and overlays from the likes of Adap.tv, ScanScout, EveryZing and even YouTube.

Poll after poll have showed that many of these are still viewed as cumbersome — despite lots of work by very smart people to integrate these ads. The benefit of SMB local video in the local search context, as we’ve always said, is that it doesn’t come with this problem: The whole video is one big ad.

But for video ad insertion, a format has emerged from an Israeli company called Innovid. Its ad integration doesn’t happen before the video, or next to the video, or at the bottom bar of the video: It happens inside the video. More specifically, it happens on top of the video but is layered in a way that renders three dimensions so an ad can be put on the wall in the background (or a product in the foreground).

To better grasp this concept, think of the yellow and blue lines that are superimposed on the first down and line of scrimmage in NFL games. Now picture the same thing but with enough depth and resolution to create still or moving advertisements. This has been done in some baseball games when ads are shown behind home plate for television viewers (viewers at the park see a blank green screen).

So essentially this concept has been brought to online video. The benefit of this context is that it is interactive — ads can be clicked to take users to a given site. As you can imagine, ads can be dynamically placed and targeted based on all the usual metrics (analytics can report clicks and mouse-overs).

This seems like something YouTube should be doing (or buying), given its well-known monetization challenges and its own recent uptick in experimenting with ad formats. YouTube’s challenge, however, has less to do with technology and more with getting more “head” content that is attractive for advertisers, as we’ve argued.

Check out the Innovid site for a video that shows the technology in action, as well as an interactive demo.