by: Dave Lavinsky

Contextual Advertising is, by definition, text-based advertising. As opposed to search engine results which show up when a user types in a specific request, contextual ads appear alongside text on all websites that opt to show them.

The market leader in contextual advertising is Google. Through its AdWords™ program, advertisers can choose to syndicate their ads on relevant websites. On the other side of the equation, website owners can join Google’s AdSense™ program to serve these ads.

Google is not the only company that allows website owners to serve contextual ads. There are a host of others such as Searchfeed.com and Revenue Pilot that also do this. The problem with using these other firms is that the price-per-click you receive will most likely be less than the price that Google pays you. This is because advertisers generally bid/pay on an auction basis. Since Google has so many bidders, the price that the advertiser pays is greater than they pay on lesser search engines (classic supply/demand economics).

There is one search engine, Overture, which also serves large volumes of advertisers, and as such, has keyword bid prices that are as high as, and often higher than Google’s. While Overture does offer contextual advertising, it has strict limitations which prevent the vast majority of websites from enrolling. Specifically, Overture limits its contextual advertising program to websites generating more than 1 million web searches a month.

Overture clearly is missing out on a huge revenue source by limiting program participants. The rational behind its selectivity is most likely the fact that its contextual advertising program relies heavily on Overture's editorial team to avoid poor matches that a technology-dependant approach inevitably produces. As an example, according to statements released at the time of the program’s launch by Bill Demas, Overture's Senior Vice President, without editorial intervention a story about a person stabbed to death could easily carry knife advertisements.

While Overture is missing out on significant revenues, web publishers are also missing out by Overture’s non-participation. This is because, if more web publishers were able to choose between AdSense and Overture’s programs, Google would be forced to become more aggressive with the percentage split that it gives AdSense publishers. While it has been reported that big Google partners such as AOL.com receive 80% of the revenue per click generated by Google ads, AdSense publishers report figures in the 10% to 50% range.

So, web publishers should really begin pushing Overture to open up its contextual advertising program as web publishers, and potentially Overture/Yahoo!’s shareholders, could reap significant financial benefits.

About The Author
As President of Growthink, Dave Lavinsky has helped the company become one of the premier business plan development firms. Since its inception, Growthink has developed over 200 business plans. Growthink clients have collectively raised over $750 million in financing, launched numerous new product and service lines and gained competitive advantage and market share. Growthink has become the firm of choice for venture capital firms, angel investors, corporations and entrepreneurs in the know. For more information please visit http://www.growthink.com.

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