Right now there are a whole bunch of people trying to create the next big adsense. People see the value in contextual advertising, and programs are popping up all over the place.

I think most of them are missing the boat, and are setting themselves up for failure. Most of them get trendy, people realize they don’t work very well, and stop using them within a few months.

Why don’t they work very well? Because the businesses use a horizontal market model. They try to be google and be everything for everyone. They try to be able to serve relevant ads to any page, and it doesn’t work because they don’t have the ad inventory that people want, like google has.

This is why Yahoo hasn’t done very well yet, but will do well in the future. They have a gigantic base of advertisers, and that base will grow to the fringes as they improve their version of adwords. They already have a huge traffic base so it’s worth it for advertisers to come and advertise with them.

Others don’t have this luxury, they don’t have the huge traffic base, so they don’t draw nearly the number of advertisers.

So what’s the next big trend in contextual advertising?

Vertical markets.

Being the best source for traffic in a specific industry. If you can be the best source for traffic, you can get lots of targeted advertisers, not lots of random advertisers.

NextInsure.com is the best example I’ve seen of this. They only do insurance and mortgages. They have advertisers bid per click what they’re going to pay, and then they go out and get their ads on high quality publisher sites. If you’re an advertiser in the insurance industry, and you’re doing a PPC campaign and nextinsure isn’t part of that ppc campaign, you’re missing the boat.

I think this is the way most contextual advertising is going to go over the coming years. Imagine a technology targeted ad network that was only targeting technology stuff. The payouts on these networks are higher. Don’t you think sites like devshed.com or expertsexchange.com would love to have a technology targeted service that pays much better than adsense or kanoodle?

Or how about the work from home verticle market. Imagine how much wahm.com could make if they didn’t have to serve crappy adsense on their site, and they could be part of an ad network that was specifically and only targeted at work from home advertisers.

Vertical market advertising provides higher payouts to publishers, and better traffic for advertisers because you can control the distribution of the ads. You can make sure the ads are only on high quality sites. It means less click fraud, less spam, less advertising money wasted.

Vertical market contextual advertising is a win-win for everyone involved.