I missed this the first time around but John Battelle’s description of how Overture and Ad Sense have flipped the old publisher-advertiser business relationship around makes sense. He polishes the idea a bit further in the latest issue of the MIT Technology Review:
Imagine that we start with the idea of PPC—that advertisers pay publishers only if their ads are acted upon by readers. Next, imagine that, instead of buying into PPC networks or specific sites, advertisers release their ads onto the Internet.
Because an Internet-based ad is already a little piece of software, it can be tagged with information about its target audience, how much the advertiser is willing to spend to reach that audience (and how much each click will cost), what kind of websites are acceptable or forbidden (such as porn sites), and any number of other attributes. Most important, each ad could communicate with a “home” application that tracks its progress and status.
Once these tagged ads are let loose, publishers could simply copy and paste them into their own websites. Through connections to their home sites, the ads would report which publishers have pasted them where, how many clicks they’ve received, and how much money is left in the advertiser’s bank account. The ad propagates until it runs out of money. If it is working, the advertiser simply fills up the tank with more money.
Why is this model better than the current one? Because publishers know their audiences best. There’s no incentive for publishers to place ads that don’t perform or that offend their readers.
For more on the original conversation, see Ross Mayfield’s post on the Cost per Influence.