When online publishers use AdSense, they have an option to utilize link units. These ads feature a list of links that are contextually based on the content of the page they're featured on.
When the links are clicked on, it takes the user to a page of sponsored links. That page is now getting a display ad at the bottom. Google says the conversion rates are better for pages with the image ad. The display ads are also contextually targeted.
If there are no relevant image ads for the content, no image ad will be shown. It will not be replaced with a public service announcement or blank space.
Advertisers may bid on these display ads on a cost-per-impression (CPM) and cost-per-click (CPC) basis.
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