When you next watch a YouTube clip on the web, you may well be witnessing Israeli Tal Chalozin’s technology business expanding its reach — and revolutionising the online advertising market.

His company, Innovid, which he co-founded almost two years ago, enables advertisers to move away from the standard pre-roll and post-roll advertising — short ads that appear before or after the clip being viewed — and instead insert three-dimensional interactive adverts into videos, turning entire surfaces into clickable canvases.

The system could provide a crucial way of monetising online video by allowing advertisers to use the technology for interactive prompts or to highlight products on screen that catch the user’s interest.

“Advertisers can get more reach and brand exposure,” says Mr Chalozin, 27. “The publisher is able to create more spaces where they can get more revenue from online videos.”

The firm, which recently came out of “stealth mode”, as Mr Chalozin puts it, has secured a major contract with a leading internet site in Canada. It has also joined forces with Warner Bros, which is using Innovid’s technology in an online promotional video for its new movie Watchmen.

Mr Chalozin — a graduate of the IDF elite programming unit — founded Innovid in 2007, together with fellow entrepreneur Zvika Netter. Headquartered in New York with its R&D in Israel, the company has raised around $125,000 in start-up capital from a number of private investors including seed angel Jeff Pulver. Last March it raised $3 million in venture financing from Genesis Partners. Mr Chalozin and Mr Netter did not pay themselves a wage for the first year.

So how exactly does the technology work? Producers/content owners can create spaces inside videos into which advertising ‘props’ can be inserted. For instance, an iPhone could appear on a table within a video clip. Users can click on the iPhone to find out more about it or buy it.

“Our technology enables you to track a 3D location within the video,” explains Mr Chalozin. “Taking a Seinfeld episode for instance, stations Fox or NBC can mark spaces within the show — when it is online — and define them as virtual billboard or advertising spaces, inserting interactive products within this spot. And if the camera moves, we can track the product which looks real and seamless. It’s a much more fluid and non-intrusive way of advertising.”

But is this ethical? In the UK, the Advertising Standards Authority insists on the clear separation of television programmes and advertising. He responds: “What we are doing isn’t subliminal advertising. Every online video with interactive adverts is preceded by alerts about the nature of the content. I would like to move into more traditional media — but only if the law permits it.”

Mr Chalozin was recently named young entrepreneur of the year by industry magazine Business Week. He is believed to be the first Israeli to have been nominated for the accolade. “I always wanted to try and set up my own business,” says Mr Chalozin, who did not go to University. “I learnt everything from reading books and Wikipedia.”

In 2006, he founded his first venture, GarageGeeks, a physical and virtual space for multi-disciplinary creative people to meet, innovate and build non-commercial and non-profit projects. He remains involved.

Next up: Innovid. “Zvika and I wanted to find a way to create a new experience within online video, regardless of advertising. There is a saying in media: ‘moving from a lean-back position to a lean-forward position’. Normal television is a lean-backward experience; you hit play and do not interact with the film. It’s linear. Everyone all over the world is watching the same video.

“We wanted to find something better. Online, videos don’t have to be the same. They can be consumed differently to how they are on television. We wanted to create something that would change according to the viewer that they can interact with. For instance, we can place a CD box from Amazon on a table and someone can click on it and directly buy it.”

He hopes the concept will become the norm in a year’s time. “We want companies to follow and create a real market.” Is now not a bad time for advertising, though? “I have found that during the recession and hard times, advertisers tend to move their dollars out of traditional television advertising to digital, where they get more rate of return on the same amount of money.”

The main problem with traditional television advertising, he says, is that it’s not measurable. “You don’t really know how to track it. However, online, you can measure things exactly, so it’s much easier for advertisers to pay the dollars. They can see the response immediately. Our system can track activity, such as how many people have interacted with something or watched a particular frame.”

He adds: “It is hard everywhere right now but we are trying to create constructive technology. Even in this economy, people are looking for innovative stuff. “The challenge now is to create metrics and statistics that prove that the technology works and that you can make money out of it.”

Growing up in Ramat HaSharon, Israel, Mr Chalozin now divides his time between New York and Tel Aviv.

Innovid