As Fredrick Marckini of iProspect points out in his SEM Predictions for 2004 article "Contextual advertising will change the shape of SEM." Search Engine Marketing (SEM) is a new enough term to most Web publishers and traditional advertisers. Now they have to grasp the implications of Contextual Advertising.

Contextual advertising got its start online through the major search engines in 2003. But, what started as a by-product of paid listings will come into its own in 2004 as savvy SEM firms and online ad agencies recognize the benefits of contextual ads relative to other types of online ads. Well-produced contextual ads are placed in front of users who are exhibiting an interest in the topic of the ad at that time of viewing the ad. How can an intrusive ad for a product of no interest to the viewer, no matter how great the production value, compare? (Think the overhyped ad for Mercedes on Salon.) The current formats used by Google and Overture are limiting, but will certainly undergo a series of improvements in 2004, especially as top national advertisers put more funds into online advertising.

But, the major search engines aren't the only platform for contextual ads. More tightly-aligned clusters of sites may be more appropriate for specialized advertising content. Watch for new players to emerge that serve contextual ads for vertical communities of publishers and advertisers. At this point, there are players that are moving into this space from affiliate marketing, text-analysis technology, content management, ad serving and related fields, but I have yet to see the right mix of technology for content-matching, network of content sites, and content ad formats/options to name any clear winners in this race. It will be interesting to watch developments in 2004.