Contextual ads appear on the pages of web sites participating in an ad network. These networks attempt to understand the context of a page and serve up ads that match keywords or topics found on that page.

The big player here is Google through their AdSense program. But, now you can also get contextual that’s through Yahoo! and MSN. Take a quick look at this review: Top 10 PPC Alternatives or more.

Contextual ads are currently also found on social networking sites and browser based e-mail services. You can expect contextual ads to start showing up in a lot of new places in future.

What’s good about them?

• They are usually cheap
• They generate a huge volume of impressions (but low click through rates)
• The high volume low click through rate combination can be a good way to spread branding messages inexpensively
• They allow display advertising (graphic banner ads)
• The huge volume of impressions can still deliver significant click through traffic
• They offer a way to reach customers who are not already looking for you using a search query especially through the new channels they are reaching into like social networking and e-mail.

What’s bad about them? 

• Because of the low click through and conversion efficiencies it can take quite a while to get enough feedback to know whether contextual that’s our working or not
• Many networks automatically up you into their contextual advertising program thus exposing you to low value high traffic sites like my space. If you are not aware you could blow a month’s advertising budget on garbage clicks.
• Unlike the traffic generated from the search query page traffic from contextual ants is not as qualified and therefore less likely to convert into a lead or a buyer on your web page.