Will GOOG and YHOO's contextual advertising businesses continue to grow?

Includes: GOOG, YHOO
by: David Jackson

Google and Yahoo (Overture) have built significant businesses providing contextual ads to Web sites. Here are two radically different views of the prospects for Google's AdSense and Yahoo's Overture contextual ad businesses:

Web publisher Robin Good argues that contextual ads are less intrusive and more useful than traditional banner ads. He lists the "key ingredients for a new approach to better advertising":

  1. No interruptive ads. No interstitials, no pop-ups, no banners.
  2. No grab-your-attention visual ads. No animations. No special colors.
  3. No marketing hype: best, fastest, cheapest, etc. I want the facts.
  4. No irrelevant products.
  5. Yes to complementary, contextual, topic relevant ads.
  6. Yes to text-based advertisements.
  7. Yes to extra info, try-outs, demos, tutorials.
  8. Yes to products I endorse, not to anyone who can pay for it.
  9. Yes to advertisers/sponsors who pay for providing/supporting additional high-quality content sections.

But Cory Kleinschmidt argues that AdSense faces extinction - unless Google shakes things up. He claims that Google's contextual targeting is spotty, that click-through rates on contextual ads are falling, that Google's AdSense program lacks accountability, and that Web site owners now have advertising options that weren't available when Google launched AdSense. He recommends the following changes:

  • Increase the revenue share to publishers
  • Provide more accountability so publishers know if they're getting the value they need
  • Provide more transparency and allow publishers to more easily "hack" AdSense to their advantage
  • Offer more customization options for the ad creative, such as randomizing the order or putting limits on how many times an ad can appear
  • For advertisers, make it even more compelling to choose content targeting. AdSense doesn't work unless there is a large enough stable of ads to display.

Quick thought: Firefox poses a threat to many Internet ad businesses, because it allows users to block ads of their choice. Meanwhile, the Web is at a cross-roads. On one side: video ads are becoming more popular, but they give the user less control and are more intrusive and TV-like. On the other side: Google and Yahoo are investing their efforts in better contextual targeting, which makes ads more useful and less intrusive to the user. Now put the two together: with improving ad-blocking technology, users will be able to block the ads they don't like. My gut feeling is that video ads will get blocked, and (improved) contextual ads will survive and thrive.