Ad:Tech, the worldwide digital advertising conference series, is this year launching its first ADSPACE conference and expo in San Francisco, dedicated to contextual advertising for small to medium-sized publishers. The one-day event will focus on making the most out of AdSense and leveraging similar advertising networks to make the most money possible for online advertisers, particularly when the main alternative–display advertising–is faring poorly.

It should come as no surprise, then, that YieldBuild’s very own Paul Edmondson will be a panelist for one of the conference sessions: The State of Contextual Advertising. Joined by 3 other panelists, including Kevin McCabe, senior product manager for Microsoft’s new AdSense challenger, pubCenter, Paul will discuss the current state of the contextual ad market, the major players in the space, trends, and challenges faced both by advertisers and publishers.

Should be a terrific show, coinciding with the standard-bearing event in the industry.

Click on the ad to the right, and use the promotional code ADSPACEC to get a 20% discount off your ticket!

A study by Lightspeed Research and IAB UK surveyed Web users across a broad age range, and the results are interesting.

Across all ages, the most important attributes in grabbing attention are, in order:

1. relevant
2. useful
3. offering a discount

Younger visitors (18-35) are more interested in:

• special offers (free or discounted)
• entertainment value
• exclusive information or invitations

Older visitors (45-54), on the other hand, are drawn to:

• relevant
• useful

(Freebies might be interesting, too, while the economy is in the doldrums.)

As for formats, all age groups said that they were both familiar with and have clicked on display, text, search, and email ads.  Search and contextual ads were cited by all age groups as the most enticing.

In terms of other formats, younger respondents (18-24) liked Facebook and other social media advertising, including virtual gifts and widgets–29% in this age group had interacted with social media ads–while 34% of slightly older respondents (25-34) said that they had clicked on email ads.

ValueClick Media, who’s in the (currently) unenviable position of trying to move display inventory, has released a new banner technology that has the ability to target site visitors by demographics, context and browsing behavior (through its Precision Retargeting product).

Advertisers provide ValueClick with an XML feed with micro-targeting data which is used by ValueClick to serve up customized ads that assemble, presumably, relevant creative, messaging and landing pages for each visitor. The accuracy of the targeting depends on how granular the data is that the advertiser provides, and it obviates the need to create multiple iterations of each creative for various targeted segments. BT comes through ValueClick’s impressive reach–about 83% according to ComScore.

ValueClick seems to have taken a page out of the book of ad creative optimizers like Personiva, Tumri and SnapAds, who have given advertisers the tools to integrate ad creatives and messaging with targeting data to boost response rates.

Tax preparer TaxBrain is one of the first clients using this new product.

As part of its fifth annual Demo Fest, Microsoft’s adCenter Labs showed reporters four new ad technology concepts. While not revolutionary, they demonstrate an interest by the company to both continue innovating in advertising formats, and gather data about what sorts of formats resonate with site users and which don’t.

The four products demoed:

• Microsoft Gaze: a contextual in-text widget. Embeddable script can create a pop-up widget window when site visitors hover over selected keywords. The window can host video, images, snippets of related Web pages, maps and, naturally, Microsoft advertisements.
• Search behavior-targeted gift matcher: Based on data culled from its own Live Search and opted-in user profile information from its email and Live ID (demographics, primarily), a gift search service can take an intended recipients age, gender and interests, and serve up surprising present recommendations. (If, for example, heavy Beyonce searching correlates strongly with searches on green tea, then maybe a green tea gift bag would be served up)
• Creative Creator: Allows smaller advertisers to generate display advertising using creative integration tools. Someone without a creative team or even Photoshop can put together a simple banner.
• Location search inferrer: This search technology determines if a search is likely to be intended for local search (like “doctor” or “chinese restaurants”) so that relevant local advertising and search results can be served up (as opposed to a search term like “james bond” which has no locality relevance). However, a search for “san francisco chinese restaurants” when the searcher is in Milwaukee might serve up travel-related results.

Testing contextual, search-behavior, and location-based technologies for advertising is particularly telling given Microsoft’s recent beta launch for its adCenter Publisher (pubCenter) contextual ad service, which has been gathering buzz based on its perfomance compared to AdSense among its private beta users.

How big is the contextual ad market? I’ve turned to a few sources, made a few assumptions, and came up with the following numbers:

First, we begin with eMarketer’s projections from February 2009, which are admittedly a bit rosy. (Keep in mind that we’re generally optimistic with respect to contextual advertising as well, even during the current rough patch) These figures are for the U.S. only:

2008: $2.15 billion
2009: $2.45 billion (+14% over previous year)
2010: $2.73 billion (+11%)
2011: $2.98 billion (+9%)
2012: $3.33 billion (+12%)

This works out so that contextual advertising comprises about 20% of the search advertising market, and about 9% of the total online advertising market overall.

Worldwide figures are not available, so I’ve taken estimates of the total online advertising and search advertising markets from IDC’s 2008 study and applied the same percentages for contextual advertising’s share, as well as the same growth rate for contextual advertising. This yields the following for the total worldwide market (I’ve taken off a significant figure from eMarketer’s U.S. projections):

2008: $5.9 billion
2009: $6.5 billion
2010: $7.3 billion
2011: $8.0 billion
2012: $8.9 billion

Two bits of news today from The Google:

• Urbanspoon, a restaurant discovery iPhone app, is one of two apps testing a new format of Google advertising. Clicking on an ad takes you to a page within the app about the advertiser, including a link to their Website. No word on how conversions are tracked and priced (just the in-app landing page, or a click out?). Google already advertises in mobile browsers; this is just their first foray at helping mobile app developers monetize via ads.
• The WSJ reports that Google and agency holding company WPP are funding a 3-year, $4.6 million research program that will probe the effectiveness of advertising in driving consumer action in both traditional and digital media.  Why? Transaction-oriented advertisers (read: the long tail) have been sold on AdWords’ ability to deliver sales and track performance, brand advertisers (read: the big spenders) have been less interested, preferring generally to send the lion’s share of their budgets to broadcast media even though its impact is unknown. Research demonstrating online advertising’s impact on purchase should help marketers know the devil they currently don’t.

Here’s some data from Q3 2006 through Q4 of 2008 detailing Google’s AdSense revenues, payout and net profit.

TAC = Traffic Acquisition Costs. This is primarily what Google pays out to its AdSense publishers.

The figures below only refer to the portion of TAC dealing with AdSense payout. For instance, Q4 2008’s total TAC was $1.48 billion (which includes payment to distribution and traffic-driving partners, in addition to AdSense payout).

• Q3 2006: $0.78 billion
• Q4 2006: $0.92 billion
• Q1 2007: $1.05 billion
• Q2 2007: $1.06 billion
• Q3 2007: $1.12 billion
• Q4 2007: $1.31 billion
• Q1 2008: $1.34 billion
• Q2 2008: $1.32 billion
• Q3 2008: $1.33 billion
• Q4 2008: $1.29 billion

There’s always a discussion as AdSense payouts fluctuate whether Google is putting the squeeze on its publishers and extracting more of the advertiser revenue collected. It’s not clear how much Google is really able to fine-tune the dials to make its quarterly earning call numbers seem more impressive, but the picture can be mixed. In the second quarter of 2008, for example, 2/3 of a drop in total revenue was borne by publishers and 1/3 by Google, while a slight fourth-quarter uptick in revenue ($10 million approx.) resulting in a drop of $40 million in publisher payout and a $50 million increase to Google’s topline. Naturally, this is the same quarter when advertising revenue starting tanking against all rosy expectations earlier in the year.

Three new banner formats sanctioned by the Online Publishers Association (OPA) have gotten the green light to debut on CNN.com, NYTimes.com, WSJ.com, ESPN.com and other OPA-member sites with a combined audience of over 108 million monthly visitors and 66% of the US Internet audience.

The specs:

• Fixed Panel: 336 x 860; follows the visitor down the page
• XXL Box: 468 x 640; expandable for video and with page-turning capability
• Pushdown: 970 x 418; unfurls to take over most of the visible page but then rolls up

While not IAB standards, the move has been welcomed by the IAB, which has been pressing for ad format innovation as a way to lift the display ad market out of its current slump.

No word on when exactly the ads will be rolled out; I haven’t seen them in the wild yet on any of the sites that are supposed to launch them. It will be interesting to see if they’re well-received by site visitors. If they are successful, expect to see new sizes and formats to proliferate with the blessing of the industry bodies.

Despite all the purported death knells we’ve been hearing, maybe we should drag ourselves back to the real world and realize the current economic downturn, and its concomitant slowdown in the online advertising market, will not last forever. Sure, weaker companies will be pruned away, there might be some consolidation, and those who make it through will have to pare back their growth projections, but only in the short term. The numbers simply point to strong future growth.

Let’s start off with a few interesting figures that have appeared in the last few months:

• online advertising accounts for about 8% of all advertising in the US
• however, it accounts for about 20% of all advertising in the UK
• Americans spend 30% of their leisure time online, compared to 28% among Brits

Maybe it’s not that the US advertising market needs to catch up, but the UK online ad bubble needs to pop? Maybe.

Interestingly, in Deloitte’s annual State of the Media Democracy survey, TV is considered, across all surveyed geographies, as being the most influential media format when it comes to their buying decisions, followed by online in some countries (Japan, Germany) and magazines and then online in others (US, UK, Brazil). Radio advertising ranked lowest.

Why? Maybe it’s a matter of the sophistication and sensory impact of advertising, which is still indubitably the domain of television.  It also could be a factor of reach: blog advertising is relatively influential in Japan, where blogs are exceedingly popular.

In either case, this bodes well for Internet advertising, where innovation and broadband connectivity are boosting the sophistication and depth of engagement of online ads, and where consumption patterns are favoring online media consumption growth at the expense of more traditional media.

You might have remembered that mid-last year Google announced that it would allow 3rd-party networks to serve ads through its platform. What this meant, in practice, was that Google offloaded a lot of Doubleclick inventory onto its AdSense publisher base. We noticed a large uptick of AdSense ad spots on the top 100,000 Websites suddenly serving Doubleclick ads in the second half of November 2008—the number of AdSense ad units serving up Doubleclick inventory more than quadrupled.

What a tighter AdSense-Doubleclick integration also allows is display/rich-media formats innovated by the latter to be displayed across AdSense’s vast publisher inventory. Google has just announced on its official AdSense blog that it will begin to show expandable ads, naturally, as third-party ads that publishers must set their accounts to allow.

In the post, they make it clear that while visitors can provide easily-demonstrable engagement with the ad by choosing to expand it, publishers are only paid if a visitor clicks on the ad to taking it to the landing page. No word if Google if remunerated by its advertisers by the same metric.