Google AdSense is a remarkably powerful ad platform for websites that happen to write about topics that have high value ads. For example, tech, travel, legal, and personal finance sites tend to connect with high cost per click ads.
The context used for contextually based ads today is largely based on the context of the page. Other variables are used, including the location of the visitor, so two people visiting the same page from different countries or cities may see different ads. But the primary driver of which ads appear on the page is the content on the page being served to readers.
While this isn't necessarily a bad thing, it does limit the effectiveness of advertising on local websites such as blogs where the topics may not align with high-cost ads.
For example, there are hundreds of thousands - if not millions - of bloggers in the United States who write about local issues and their personal lives who have developed loyal local audiences. Putting AdSense ads on their sites would earn them nearly nothing since their content would so rarely align with high cost ads.
But the real value local bloggers bring to the advertising table isn't on a post by post basis, but on a site-wide basis in the form of a loyal local audience. It's closer to a newspaper model where advertisers are trying to reach people living in a certain geography. There may be some difference in the ads served by section of the paper, but the main theme is that they're after people living nearby.
CBS has been trying to work into this market with a new service that allows bloggers to embed an advertising widget that allows CBS to sell ads across local blogs, creating something similar to a local blog network. This makes a lot of sense since CBS - together with their local affiliates - have ad sales teams in place with the right network of advertisers.
This is relatively new, and my first impression is that too many of the ads have been ads for national advertisers rather than local businesses. This falls short of the potential of a true local ad network but does solve the scale problem: few local blogs have enough traffic to warrant direct ad sales efforts.
No one has really figured out this market yet, but I have a hunch that a traditional media group like the Tribune Company, CBS, or some other company that has actual human salespeople on the ground across the country will have the best shot of winning this game. While Google certainly has the technology, it's going to take face to face meetings to really make this happen.