Digg does advertorials

Advertisers are constantly trying to outsmart us pesky consumers. We record our favorite shows so we can fast-forward through the ads; Tivo introduces the “fast forward commercial.” We leaf past the ads littered through magazines; publications like Scholastic, New York, Esquire, and Harper’s Bazaar begin selling ads right on the cover.

Online, marketers complain that Web surfers have grown increasingly “banner blind” to the clutter of rectangular display ads. They’re eager to experiment with new types of online ads that offer consumers a break from the norm. “Advertisers are always asking for something that’s more integrated, and more organic to the experience of a Web site,” says Bob Buch, vice president of business development at social news site Digg. On Thursday, his company took the wraps off a new ad format the site will begin to roll out over the coming months. Digg Ads will sit inside the stream of news stories on the site’s home page and other sections, and they’ll be modeled to look like any other Digg headline, aside from gray shading and a “Sponsored” label. Visitors can even vote on whether they like or dislike the ad (“digg” or “bury”) just as they would other stories.

Here’s what they look like:

As Eric Eldon at Venturebeat notes, the strategy is well-suited to the behavior of the site’s young, mostly-male, tech-obsessed audience. He writes: “Unlike social networks, where ads are paired with a wide variety of activities — photos, groups, events, forums, etc. — Digg users are very focused on voting and commenting on the items in their feeds.

The idea for this ad format grew out of a phenomenon Digg executives and advertisers on the site began noticing last year: commercial content like movie trailers and new video game releases that could just as well serve as promotions are routinely voted up to the front page of the site. A link to the trailer for Paramount’s new Star Trek movie, for example, received over 2,300 diggs after a user uploaded it last fall. Unlike banner ads on the site, which Digg says are typically clicked on by 0.5% of users or less, organic headlines might carry a click-through rate of 5% or more.

Another incentive for advertisers: the more diggs a given ad receives, the lower rate they will pay per click. If a campaign starts by paying $1 per click, for example, that advertiser might end up paying 50 cents or less if they earn 200 diggs. And if an ad is buried or not dugg by users, the advertiser can decide to pull the campaign.

As Jeff Jarvis of BuzzMachine writes, “That’s a reversal of advertising but it’s the way advertising probably needs to go: The better your relationship (which springs from a better product and service), the more your customers will market it for you, the less you’ll have to pay to market it.”

Digg is counting on the new ad format to help it reach profitability this year. Though the site still has a contract with Microsoft to serve its network ad inventory, the 5-year-old company has recently started building out an internal sales force – hiring Tom Shin from Yahoo! in January and Chas Edwards from Federated Media just last week.