NEW YORK In-text advertising, once scorned, is starting to gain momentum.
At a time when venture funding is scarce, in-text ad system Kontera has closed a $15.5 million round of venture funding that was led by heavyweight venture capital firm Sequoia Capital. The third round of funding brings Kontera's backing to $30 million.
In-text advertising, which turns hyperlinks into keyword-triggered ads, has in the past been controversial. Now, as another source of performance advertising in a tough market, big brands and marquee publishers are jumping on board.
"There is a tendency towards performance rather than branding, which is exactly where we're positioned because we're providing measurable results for advertising," said Yoav Shaham, Kontera's CEO.
Kontera and rival Vibrant Media perform similar services, using algorithms to match keyword ads with words on a Web page. It affixes double underlines to those words, which when hovered over show users an ad, sometimes including photos or snippets of video. Advertisers pay each time users click on the ads.
Kontera has tried to combat user ad fatigue by interspersing marketing messages with useful information like related stories.
It is the similarity to search that gained Sequoia's attention. While search has proven a tremendous system for harvesting demand, most of the Web consists of pages where users are not declaring their intent. In-text advertising serves as an additional way to show contextual ads that could be relevant to user interests.
"Kontera has opened up the vast, uncharted territory of the Internet -- the detailed content of Web pages," said Michael Moritz of Sequoia Capital, in a statement. "Thanks to Kontera's semantic analysis of the contents and meaning of a Web page, users can now find information that previously lay buried and advertisements can be positioned with far greater precision."
Tenaya Capital and Carmel Ventures also participated in the round. Sequoia is Kontera's biggest backer, having led two previous rounds of funding.
Kontera plans to use the financing to ramp up its sales efforts focused at big brands while also developing a Google-like self-service system for small advertisers. Kontera reports its ad network reaches 100 million users globally and the company is profitable.
Big brands like Ford, IBM and Intel all use in-text advertising. IBM and Volkswagen last week won awards given by Vibrant to the best in-text campaigns using its platform.
Yet, as a subset of contextual advertising, the 800-pound gorilla in the space, Google, has so far shied away from morphing hyperlinks into another outlet for its millions of ads. It allows publishers in its smaller Google Affiliate Network to use in-text ads but has not offered it as an option in AdSense.
While user-generated content like message boards remains a big source of inventory, Kontera has plenty of top-tier sites. Some publishers, particularly in the news industry, initially balked at embedding advertising into their editorial. Forbes.com backtracked on a test with Vibrant Media in 2004 after protests within the newsroom and critical commentary elsewhere.
Now, publishers like U.S. News, MSNBC and Fox News display in-text ads from Kontera or Vibrant. Kontera boasts nearly 15,000 publishers in its network.
"These days, especially when we show our ability to add value to the users, we hardly ever have those type of discussions," Shaham said.