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Contextual advertising is targeted advertising that typically occurs on a banner or pop-up ad on a website. Contextual ad systems target advertising to a specific user based on the keywords on the page he or she is visiting (hence, the context of the ad comes into play). Search engine advertising is also a form of contextual advertising, since the ads that appear in the results are based on the keywords the searcher uses. Publishers and advertisers bid for the use of keywords in an auction system run by a contextual advertising company. Publishers and advertisers only profit from the advertisement when a user clicks on the ad in what’s commonly known as pay-per-click or PPC advertising.

Contextual advertising has caused some alarm because of the potential privacy issues and the occasional installation of software onto a user’s computer through a process known as third-party hyperlinking. In this system, the software searches the context of the page, site, or the user’s history and then displays advertisements related to the content in the form of hyperlinked PPC keywords instead of regular banners.

Google AdSense is a contextual advertising program, as is Google Content-Targeted Advertising. This program was one of the first of its kind. The ads appear in search results and on websites within Google’s Content Network. Developers can accomplish this by adding lines of JavaScript code to their web pages. When the code is integrated, AdSense searches for relevant ads using Google’s search algorithm. Contextual ads will be displayed when the algorithm finds a match. The program also considers the location and languages of the visitors.

MSN AdCenter and Yahoo! Publisher Network are alternative contextual advertising companies that provide these types of services. These sites give small business owners the opportunity to advertise without dealing with each individual sponsor. Large sponsors often will not advertise on small sites on an individual level.

Here are ten facts and trends about contextual advertising to help Internet marketers stay informed:

1) Advances in Advertisement Relevance Software

Developers are seeking to improve the relevance of targeted advertisements displayed to the viewer. Currently, the relevance of an advertisement is determined by technology such as Googlebot and Mediabot. This technology works by inserting JavaScript into the webpage in order to display relevant advertisements to the user. The algorithms are currently being improved to more accurately match advertisements to the preferences of the consumer.

2) Message Customization and Contextual Advertising

Developers are devising ways to determine the ages of the individuals using a particular computer or the family groups associated. The French are currently using this form of intuitive digital advertising. Developers are seeking ways to customize the messages displayed to the audience. The advertisements, in the future, will also be able to gain more information from the audience to influence an individual buyer through message customization.

3) Software-Free Contextual Advertising

Some companies choose to work directly with publishers to include contextual advertising. These companies elect not to rely on software. About.com uses the Sprinks service to insert contextual links. Applied Semantics also solicits ads in this manner. Their AdSense program analyzes the content of their web pages and selects ads that seem most appropriate. This company has placed ads on USA Today, Excite, and iWon. The company expects to gain several more major customers within the month.

4) Contextual Advertising and Video Games

Developers have tried to insert contextual advertising in video games. Sony’s Wipeout HD was one of the first games to contain contextual advertising before loading. Gamers complained and immediately the advertisements were removed from the games. The advertisements were presented at a time that was more annoying to the gamer than helpful. Developers are seeking ways to integrate contextual advertising without interrupting the load time of the game and the user’s experience. The University of Luxembourg has created a game called AdRacer to test new advertising techniques. As the player is driving, advertisements will appear on roadside “billboards.”

5) In-Text Video Contextual Advertising

Adbrite was one of the first to market in-video text advertisements on YouTube. ScanScout uses General Catalyst Partners in order to place advertisements over the video before viewing. Video-on-video advertising is possible as well. The ScanScout technology works similarly to the AdSense technology. ScanScout scans the video for content and then provides advertising based on the content of the video.

6) Billboards and Contextual Advertising

Companies are making plans to embed cameras in billboards and scan the faces of people who pass by the billboard. The software will tell the advertiser how many people passed the billboard and how long they looked at it. Most individuals will have their gender read by an accuracy of 85%. Men and women could see different ads based on their gender. These campaigns intend to be “ultra-targeted” to direct advertisements only to individuals who frequent the area. This is another form of contextual advertising that may be available in the near future.

7) Viral Videos and Contextual Advertising

Viral video uses the participation of the audience to create user-generated media. Businesses will try to understand their audiences to solicit involvement from user-generated media. Consumers will become attracted to messages that are relevant to them as opposed to targeted at a general audience. Businesses no longer need absolute control with this software and consumer participation.

8) Contextual Advertising and Pricing

Publishers and advertisers are encouraged to work together to maximize the amount of money that they both earn. If they work together, they both will earn a profit. Advertisers enjoy the ability to set their own prices for their product. However, companies are trying to determine if a price can be set for all members of the network. Google introduced the Smart Pricing scheme that will allow prices to be dynamically set. Yahoo! has opted to set one price for each company rather than using software to determine a price for the product. The problem with this option is that most companies are compelled to set the price to the least valuable site in the network.

9) Contextual Advertising and Control

Publishers were excited about the ability of splitting the profits with contextual advertising companies when the idea was initially introduced. Publishers can now select more than one contextual advertising company. Publishers will gain more control when they are allowed to choose. Publishers may also have the ability to select specific ad categories. For example, a publisher may know that an individual that likes a certain type of music may also like a certain type of stereo speakers to accompany the music. This allows publishers the control to select advertisements that make these connections in their audience.

10) Contextual Advertising and the Migration Toward Behavioral Advertising

Behavioral advertising is expected to become the next contextual advertising. Behavioral advertising records the user’s behavior rather than just the user’s preference. Many people are uncomfortable with the privacy issues that surround targeted advertisements and tracking a person’s behavior on the Internet. Contextual behavioral advertising will be based on the user’s surfing behavior in prior sessions. Therefore, two individuals will see entirely different advertisements even though they are visiting the same site. The behavior is tracked via cookies stored on users’ computers. Many companies are interested in pursuing this practice, because experts have shown that the click through rate and, more importantly, conversion rates are higher with behavioral marketing than they are with other forms of advertising.

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