Contextual advertising is the term applied to advertisements appearing on websites or other media, such as content displayed in mobile phones, where the 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.

Since the advent of AdSense, the Yahoo! Publisher Network, Microsoft adCenter and others have been gearing up to make similar offerings.

Contextual advertising has made a major impact on earnings of many websites. As the ads are more targeted they are more likely to get clicked,thereforegenerating revenue for the owner of the website (and the server of the advertisement). A large part of Google's earnings are from their share of the contextual ads served on the millions of webpages running the Adsense program.

Advertising on a Web site that is targeted to the specific individual who is visiting the Web site. A contextual ad system scans the text of a Web site for keywords and returns ads to the Web page based on what the user is viewing, either through ads placed on the page or pop-up ads. For example, if the user is viewing a site about sports, and the site uses contextual advertising, the user might see ads for sports-related companies, such as memorabilia dealers or ticket sellers. 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.

Contextual advertising has attracted some controversy through the use of techniques such as third-party hyperlinking, 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. A contextual ad is the advertisement that dynamically appears on a Web site.

Agency Roles

There are many agencies that will help brands understand how contextual advertising options affect their advertising plans. There are three main components to online advertising. Creative (what does the ad look like), media planning (where do the ads run) and media buying (how do you pay for the ads). Contextual Advertising replaces the middle component, media planning. Instead of humans choosing placement options, that function is replaced with computers facilitating the placement across 1,000 's of sites.