While I’m on the online advertising beat, a post to Site-Point claims that Amazon is planning to get into the contextual advertising game and has a beta program already running.

It makes sense for Amazon, and even more so for eBay, to track down this path. I think the gap between online advertising and the actual closing of the sale has to shrink as we move forward.

The first step towards this happening is that advertisers need to get a lot more granular with their advertisements because AdSense is not good at generating income for a very substantial proportion of Internet sites (see my previous post).

So to use the example I used previously: You do a search on President Bush. Under AdSense you get nothing. However, if you’re running an eBay contextual advertising block, suddenly your sites starts feeding up a whole host of ads for related items being sold on its auctions or at any of the thousands of individual eBay stores.

Now, that’s contextual advertising. It’s all very well to microchunk you’re content, but it doesn’t really work across the breadth of the Internet until you microchunk you’re advertising as well.

Yet neither Yahoo or MSN are coming at their advertising programs at a way which solves this problem and therefore addressing the grievances of all those content providers for whom AdSense isn’t working.

Companies like Amazon and eBay, on the other hand, who actually own catalogues of products can make an immediate impact in this space. For me, Amazon, as primarily a retailer isn’t nearly as well positioned as eBay, who exists solely as a selling platform.

Both Yahoo and Microsoft are going to struggle to compete with Google because they don’t have the advertiser critical mass. And without advertiser critical mass, pushing up rates and therefore increasing content provider’s income, the game is really difficult to turn around.

However, eBay is potentially, if it isn’t already, the biggest contextual advertiser on the Internet so it will have pretty reasonable critical mass right up front. If there isn’t an external provider to take inventory, it simply serves up one of its auctions (for which it doesn’t even need to charge for because it’s taking a cut of the sales revenue anyway)

Certainly, eBay will also realise that Google is edging onto their turf with GoogleBase so a counterattack makes even more sense. They also own Skype, so they can bring the buyer and seller even closer together via VoIP. I’ll be very, very surprised if eBay hasn’t launched its own advertising network within the next six months.

(By the way, the GoogleBase reference is worth thinking about. Google really needs to get sellers to get their product catalogues into GoogleBase and then tie that to AdSense so that they too can begin to sell at a more granular level. Arguably, this is a better approach in the long run as its a distributed model so you don’t need to be tied to a particular selling platform like eBay. However, Google would appear to be a long, long way from making that happen, so eBay would definitely have an advantage in the short term)

Oh and one more thing. And it’s kind of a big thing. Could this issue finally be what brings a couple of the titans together. Think about a mega-merger between either Yahoo/Microsoft and eBay. In particular, I’d be bullish about a Yahoo/eBay combination. You get supply side and demand side critical mass all in one shot so that you’ve actually got something comparable to Google’s network. You get a far better suite of tools for connecting buyers and sellers – Overture/Yahoo’s SMB services/website builder/IM+Skype vs GoogleTalk. And finally you get an ability to profile your community which would leave Google for dead; ie eBay vs Froogle/Google’s Pagerank analysis vs Yahoo’s social networking profiles.

You tell me that doesn’t make a whole heap of (ad) sense?