Contextual advertising are advertisements which appear on web sites or other media. These advertisements are selected and served by automated systems based on the content displayed by the user.

Google AdSense was the first major contextual advertising program. It worked by providing webmasters with JavaScript code that, when inserted into web pages, called up relevant advertisements from the Google inventory of advertisers. The relevance was calculated by a separate Google bot that indexed the content of the page.

This type of advertising has increased earnings for web sites all over the globe. The advertisements generate more click throughs because they are more targeted than other types of rich media ads. The owner of the web site can earn more revenue due to Google's AdSense program, especially with their reach to millions of web pages.

Whereas contextual ads are the advertisement that dynamically appears on a Web site, there have been issues concerning third-party hyperlinking. This is where a third-party installs software onto a user’s computer that interacts with the browser by turning keywords on a Web page into links that lead to advertisers that are not paying the Web site to advertise on its pages. 

When a web site visitor clicks on a contextual ad, the system will scan the text of a web site for keywords and then return ads to the web page based on what the user is viewing. For example; if the user is viewing a site about automobiles, and the site uses contextual advertising, the user might see ads for automobile related companies, such as car or truck dealers. Contextual advertising also is used by search engines to display ads on their search results pages based on what word(s) the users has searched for.

There is plenty of debate, however, whether PPC's algorithm can match advertisers to publishers efficiently. What might be a good ad, maybe overlooked due to textual language as conversation. Google and Yahoo! have been perfecting their algorithm to combat this problem by receiving feedback from various readers and advertisers. The key to successful contextual advertising is to study which content works best in matching ads.

Yahoo! for example, looks at a site to see whether the content remains the same, such as index pages that are not updated everyday. They have their editorial department look over these sites to determine what's the best match that will work with the publishers. If there's any kind of relevancy and matching that will benefit both parties, Yahoo! contacts them about the placement. Google's AdSense on the other hand, sees no justifiable cause to offer staff because there's simply too many dynamic pages for every ad served.

The more focused the content, the better. And whether the advertiser is willing to pay top dollar for the click or not. The cost per click depends on the upward motion that the advertiser is in, as well as the competitiveness of the term that it's in. Click through rates depends on the relevance of the ads and the placement of the ads on the page. The most daunting decision for publishers is to weigh out how much return they'll get from automated contextual ads and whether it makes sense to split ad revenues with the companies serving the ad.

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