• by Steve Smith , Staff Writer @popeyesm, May 10, 2004

As any gypsy umbrella vendor in Manhattan will tell you on a rainy day, in marketing, context is everything. Last year, the Internet started catching up with the street barkers in putting the right message at the right time and in the right places around the Web. Google's year-old AdSense and Overture's more recent ContentMatch products ignited the "contextual ad" model in 2003 by using technology to help match and place their wildly popular text ads on millions of relevant publishers' pages everywhere across the Internet. And we do mean everywhere. In just a year, these simple contextual text links have become ubiquitous, running beside, below, and even within every type of content, from puny blogs to most major newspapers and portals.

And so the land grab begins, as numerous other players like IndustryBrains, Vibrant Media, Kanoodle, and Quigo offer alternative contextual solutions that try to drill the vertical markets and address some of the growing pains and complaints that arose almost immediately with this new format. Two key issues are propelling the contextual market forward in its second year: control and context - what are the best "contexts" on the Web for relevant text messages, and how much control over pricing and distribution can marketers expect from a platform that often needs to spew these ads across a large network of diverse sites? Marketers seem to be telling the contextual space that they let loose a promising tiger on billions of publishers' pages. "Now help us tame it," says Brad Byrd, director of business development at NewGate Technologies. "Give us more control."

But does contextual advertising work? Well, it works when it works, say many who have experimented with the platform. Comparing performance on contextual ads to placements showing up directly in search results may not be the fairest measure, although until recently Overture and Google tended to bundle the two products as a single buy and using the same keyword bidding process. "It's hard to say what their general effectiveness is," says Gary Stein, senior analyst at Jupiter Research. Of the marketers Jupiter polled for a recent report, most said these ads fared better than banners but worse than regular search in achieving their goals. Since contextual ads often can show up anywhere and have wildly different response rates, most advertisers do not consider contextual to be the sort of high-value, high-precision platform that behavioral targeting has become. "It's not perfect, but it doesn't need to be," Stein argues. "It's elegant targeting. You don't need to worry about cooking the user and extracting information about them. It's very straightforward and simple."

One-Stop Swamping

Contextual response rates are highly contingent on the product's being advertised and where on the Web these ads end up. Overture tends to rely more on indexing the content on a limited range of major content brands, such as Yahoo!, MSN, Edmunds, etc., while Google, as is its nature, uses technology to scan partners' content automatically with its search algorithms so that it can distribute across tens of thousands of publishers. Performance relates to context. "Tech and money are strong; lifestyle is reasonably strong, but news is not a good section to do contextual," says Adrian Bouten, VP of technology and business development at USAToday.com, which uses AdSense. Most agree that areas catering to focused, specialized audiences perform better than general information, and so click-through rates (CTRs) can vary widely in different sections of the same site. Across both search engine and alternative contextual solutions, companies often cite CTRs ranging from .25 percent to 2 percent.

"When the user is in the midst of a publication there is an action gap between reading to gather information and to make a purchase," says Byrd, and so his retail clients fare worse in contextual ads than in straight search ads. Yet, service providers and informational sites do better in this space because their text ads map well against the way users often read articles, to gather information. Likewise, Andrew Goodman, founder of Page Zero Media, says, "I am enthusiastic about it." When his Google placements for a tech newsletter also happen to show up on CNet, the conversions on contextual can even beat the search ads. And because he has already crafted creative and made a keyword buy on the engine, he gets additional reach and inventory simply by opting into the contextual programs. "We have many clients who need the volume," says Goodman.

Vibrant Media's IntelliText demonstrates how powerful contextual placement can be when an ad hyperlink is brought directly into the content. IntelliText actually rides on the power of an existing search engine (Overture) to underline words in the text of an article that you mouse-over to call up text links. Working with 150 sites, particularly in IT and gaming, "our strength is the execution in the article and not in the banner blind areas," says Craig Gooding, CEO. Gooding claims CTR performance 24 times that of banners. Vibrant had revenues double in the last year alone. Client James Kiernan, associate media director of FCBi, says the approach was especially effective in a business-to-business campaign for Hewlett-Packard. Compared to higher-priced banner placements at high-profile IT sites, "it drove a high volume of traffic at a very efficient rate," about 100,000 uniques in under two months, he says, in part because the links reached into many minor sites that HP otherwise wouldn't have bought.

The search engines offer simplicity, one-stop shopping, and incredible reach, but at the expense of advertiser control over pricing and where the ads get distributed. In January, Overture pleased many marketers by separating the search and contextual bidding markets so advertisers could track and price them differently. The less satisfying response for Google's AdSense was an algorithm that will adjust pricing downward for clicks coming from content that is less likely to convert for the client. "They admit that there's a different value for traffic coming from different content," says Byrd, "but it's a step short of providing control over pricing for that content." Similarly, Goodman says that AdSense and ContentMatch will really work for him "as soon as we get a dashboard, a way of controlling bids, of blocking publishers who don't convert or we don't like."

After Search

The natural response to the search engine's broad-but-dumb approach is to go vertical and granular. Not surprisingly, almost all of the other vendors in the contextual space are emphasizing market control and more sharply defined notions of what constitutes a good context for an ad. As an existing search engine provider to many content sites, Kanoodle presents the most direct assault on the majors with the January launch of ContextTarget. Rather than keywords, the company sells against 200 broad topics, mainly in the finance category for now, and distributes into top-tier brands like "CBS MarketWatch" and MSNBC.com. Most of all, ContextTarget separates contextual campaigns entirely from the sponsored search service so that marketers can plan, price, and optimize it independently. "You should have a different marketplace to do this," says Doug Perlson, SVP of partner development and operations.

Quigo, which already provides some of the technology for Overture's ContentMatch system, is also countering the search approach by selling 1,300 categories, not keywords, and plans to roll out its own AdSonar product this month. Quigo will place ads into well-defined verticals like health and fitness to "ensure that the ad can only show up on a publisher married to that category," says Michael Yavondite, CEO. Battling the search model means going granular. "We need to be niche-y and vertical. If you stay super-vertical and place a vitamin ad on a fitness site, it will always be contextually relevant to the page and the demographics of the audience."

The upstarts are also coming at the search engines, especially Google, where it really hurts: their famously aloof customer support. Quigo is offering marketers help in identifying keyword and placement opportunities, and, along with Kanoodle, is offering day-part placements. Kanoodle has a "ClickFactor" system that orders the ads on the content sites based on a formula involving its previous performance, relevance, and bid position.

Déjà Vu?

In contextual advertising's first wave, the allure was its ability to find the appropriate context for an ad everywhere and anywhere. But most of the vendors in the second wave of solutions seem to be folding back into the model more traditional advertising concerns over audience quality, publisher reputation, and demographics. They are all proposing more control for both marketers and publishers, which suggests that this platform may be evolving to look more like the familiar online ad model.

"Marketers are bidding on search terms, not content," says Eric Matlick, CEO of IndustryBrains, which lets advertisers bid on content categories, but on a site-specific basis, into clients like Ziff-Davis, CMP Media, and BusinessWeek. Clients can determine whether a click from a tech news site like PCMag.com is really worth the same as a click from an even more targeted government IT manager's site. Matlick is seeing 20 percent monthly revenue growth and says the market for contextual has matured to the point where it wants to micro-manage the placements.

Eventually, publishers themselves are likely to want a bigger piece of this lucrative bidding economy. In the 1990s, the dream of one-stop massive banner ad networks disintegrated as both advertisers and publishers clamored for more control over placement and sales. Likewise, Matlick and others think the contextual ad network model of 2003 could splinter into technologies that are licensed to individual publishers who sell the placements themselves. IndustryBrains has already done this with BankRate, and Quigo hopes to entice publishers by letting its partners sell their own clients contextual ads on the network. Déjà vu all over again?

In performance and in its models, contextual advertising sits somewhere between search and traditional banner placements. It is sold like search, but most agree it doesn't perform as well as search. It gets distributed like banners, yet many feel that its relevancy on a page makes a text link the more potent direct marketing vehicle and less invisible to users. New implementations, like email newsletter placements from IndustryBrains and Google, seem to push the format closer to a traditional ad model. Some, like Quigo, are already thinking about how a contextual network could also carry graphical ads and distribute banners and rich media against individual page content.

Still in amorphous infancy, the contextual ad model has succeeded in spewing text links as far as the targeted eyeball can see, but its ultimate direction and shape are far from settled. The alternative models being offered by these many start-ups could also turn out to be just so many lures for an eventual consolidation. Yahoo/Overture, a post IPO-Google, or Microsoft's un-launched search product could look for a leg up by buying out and incorporating some of these companies and their strategies.

Ultimately, the contextual ad market is only beginning to engage the question that marketers like Byrd expect to hear discussed in six months to a year. How will marketers and providers decide to trade off the simplicity and reach of search engine contextual solutions against the greater control but more limited reach of alternative and vertical approaches? "That opens the debate over how granular down the road the industry is going to allow advertisers to control distribution," says Byrd. "There's still a long way to go in the tools space to provide functionality for managing a really dispersed advertising marketplace that allows for fine-tuned control."