• by Mark Walsh  @markfwal, October 14, 2009

Four months after introducing its Digg Ads, social news site Digg says the new ad format has surpassed expectations and the company plans to syndicate the unit to third-party sites starting next year.

Designed to mirror the look and feel of stories posted to Digg, the ads allow users to users to vote up or down on ads as they would on other site content. The most popular ads -- those getting the most "Diggs" -- gain more exposure, while weaker ones are "buried" and eventually drop out of the system.

The goal is to give marketers instant feedback on ads and help generate social buzz around campaigns, while affording independent-minded Digg users greater control over the ads they see. That approach has led to click-through rates for Digg Ads 10 to 20 times higher than typical banner ads and average or higher conversion rates for e-commerce advertisers.

"It's blown away our expectations," said Mike Maser, chief strategy officer at Digg, who is in New York this week with Chief Revenue Officer Chas Edwards and Bob Buch, vice president of business development, to tout initial results from the testing of Digg Ads so far. Compared to Digg's average click-through rate of 0.08% for display ads, the rate for some two dozen campaigns using Digg Ads has averaged 1%.

Interaction rates have also exceeded expectations, with some Digg Ads drawing more than 1,000 Diggs -- higher than many organic stories on the site. Company executives point out that marketers are using the format to link their brands to positive content on third-party sites.

Toyota, for instance, ran an ad for the third-generation Prius that linked to an article on HowStuffWorks.com on "10 Tips from Happy People." The page it ran on also featured a traditional banner ad for the hybrid car alongside the content. That Digg Ad generated a 2.4% CTR for Toyota.

"Digg Ads gave us a new avenue to execute our connectivity strategy --the ads gave us the ability to link to our custom online content that was relevant to the Digg reader," said Kim Kyaw, interactive media and product integration, Toyota Motor Sales, U.S.A., Inc.

Companies such as Intel have also used Digg Ads to tap into their own community content for ad creative. An ad the chip maker ran linking to a post on its Inside Scoop blog on development of mobile Internet devices resulted in a 2.2% CTR.

Direct marketers have also been able to benefit, with Amazon.com averaging a 3% CTR for a Digg Ad promoting DVD collections of entire seasons of TV shows likely to resonate with the Digg audience such as "Battlestar Galactica," "Heroes" and "The Office."

Based on the success of Digg Ads to date, the company has boosted its 2009 revenue projection for the new unit by 300%. It's also planning to extend Digg Ads to the sites of publishing partners looking for new ways to monetize the traffic they're getting via Digg buttons used to recommend news stories. Exactly how the format will be adapted for other sites is still being worked out.

On a site like Time.com, which has a custom widget showing the five most Digged stories that day, a Digg Ad could be slipped into the list of top-ranked articles. Or, Digg Ads could be tailored to match the content of other sites. On Digg, the ads appear as other stories, with a blue-linked headline and Digg box on the right, but also carry a "Sponsored" tag in the upper left corner.

Separately, Digg has also begun testing another unit -- Digg Content Ads -- widgets containing previous home page stories relevant to an advertisers. Symantec, for example, is trialing the format with banners that feature popular security-related technology stories from the Digg archive. But advertisers won't be able to use stories that have not been promoted to the Digg home page organically.

Digg, which says it has 40 million unique visitors globally, launched a bigger ad push earlier this year, building a direct sales force under ex-Yahoo executive Thomas Shin and hiring Edwards from blog network Federated Media to lead overall ad sales and revenue-generation efforts.