There have been a few recent developments that can have significant impact on how online advertising works in the time to come. It’s interesting to look back and see what online advertising started with, where it is right now and what can it potentially grow into. In the middle to late 90’s, the online advertisements were limited to banner ads, pop-ups etc. They used to completely lack the contextual information regarding the content user is interested in, or who the user is (i.e. male/female, age, interests). This led to, for example, music related sites showing ads of banks, hoping some random users would be interested in opening an account, or “apply for Java job” banner flashing even if the user had nothing to do with technology.

As all of us remember, soon after dot com bubble burst, people started claiming that online advertising model was bound to fail, that it can’t provide a sustainable way for companies to meet their expenses (leave alone making profits) and so son.

But then came Google and changed completely the Ads were served. They started serving more meaningful and context sensitive ads based on what the user was searching for on the web, the keywords in the content of the page. We all know how successful that model has been - all the big companies are allocating significant budgets for online advertising and on the other side there are millions who have made fortunes just serving ads on their web sites.

To many of us, it seemed like it doesn’t get better than this. However, if what we have been hearing recently works as promised we would see a completely different way of advertising.

For the last hundred years media has been pushed out to people, but now marketers are going to be a part of the conversation. And they’re going to do this by using the social graph in the same way our users do.

So said Mark Zuckerberg, CEO of Facebook during yesterday’s announcement of their ad strategy. There is a lot of coverage available on this topic so I won’t talk about those here again. However there is an interesting theme in their strategy which makes it different from the Google model - firstly, the ads are targeted based on the user profile information which will make sure that the situation I mentioned above with “apply for Java job” will not be shown to a non-techie and secondly, the consumers will act as marketers. The idea here is that when a Facebook users endorse a product, this will go their mini news feeds visible to people in their network. So if one of your friends endorses a book that he or she bought from Amazon, (Mark Zuckerberg thinks) this is as good as a “personal recommendation” from your trusted fried so you’re much more likely to buy that book.

Facebook is not alone in this field. There are talks about MySpace launching something it calls “HyperTargeting” Ads.

Irrespective of how successful Facebook or MySpace are in getting this model to work, one thing is clear - there is a new type of targeted advertising on horizon and that this area of advertising is going to remain hot for years to come.