We all know that YouTube is the largest video sharing site on the web. I don’t need to tell you about the never ending stream of stupid home videos, lawsuit with Viacom over copyrighted footage, or the site’s seemingly magical power to show me exactly what I want to watch at any given moment. What I do need to tell you about is an emerging trend in embedded content marketing as producers try to monetize their Internet fame.

Product placements on YouTube are not entirely new. Tay Zonday was quick to cash in on his viral fame after Chocolate Rain with a sponsorship from Dr. Pepper.

While “Cherry Chocolate Rain” is obviously a product placement, Zonday’s music video is professionally produced, sort of entertaining and not at all dishonest about its intentions. I believe it was a great marketing move by Dr. Pepper.

The thing is though that the emergence of a new “YouTube Product Placement Agency” called Brandfame is changing everything. By connecting YouTube’s content producers with advertisers, online video product marketing is mounting an invasion. An almost evil marketing presence can be seen in the videos of YouTube’s top subscribed producer, a dysfunctional pre-teen named Fred. Since watching Fred videos tends to cause unpleasant cerebral bleeding, you can jump straight to 2:20 to see the placement.

I can’t decide if this marketing is completely stupid or pure genius.  Disguising an advertisement for a personal messaging device called the Zipit as the random online whining of an emotionally fragile child? At least they can say it has never been done before. We can see just how completely ridiculous and serious the marketing campaign is at www.fredonzipit.com.

Since Google is poised to make gigantic piles of money off YouTube for years to come, it seems pretty fair to me that content producers are starting to cash in. I urge all of you to keep a critical eye out for marketing on YouTube (we are bombarded with it constantly, it is something we should all be aware of) while also thinking about how you can use what you saw here to grow your business.