In the few short years the World Wide Web has been open for business, banner advertisements have grown from a mere blip on the screen to a $2 billion industry. The ubiquitous flashing squares--now used to sell everything from computers to Beanie Babies--are arguably the most interactive form of advertising ever. Clicking on them allows netizens to link to more product information, submit orders, and even talk to online customer service reps. For Web-savvy entrepreneurs, banners provide an important new way to target potential patrons and get a leg up on larger competitors.

To learn more about this evolving industry, Inc. Online talked to Jim Sterne, president of Target Marketing and a consultant to companies trying to create Internet strategies. Sterne is the author of three books about online marketing, including World Wide Web Marketing (J. Wiley & Sons, October 1998, $29.99), 2nd Edition. With Sterne's help, we took an in-depth look at the business models that have powered the growth of banner ads.

Banner Exchanges
Banner-swapping services are the cheapest way for a small business to get more eyeballs (read Bronwyn Fryer's " Your Message Here" in Inc. Technology #1 1999).

Here's how they work: companies like Link Exchange and SmartAge invite small businesses to send them banners, which are circulated for free to member sites built around similar content. If, for example, an exchange member sells golf attire, its ad may appear at a site that sells golf clubs. The attire business, meanwhile, might receive an ad plugging a golf-club swap for kids.

Banner exchanges usually only require that their members run the host's banner on their own site. Some exchanges, for a small monthly fee, will even register your site with search engines and track how many people click through to your site.

How effective is this method at building sales? On the upside, a banner exchange can bring your ad to the furthest corners of the Web and drive traffic to your site for free. The best will work hard to target your ad by learning about you and your customers. The downside? Banner networks often consist of smaller sites that get limited traffic; some exchange members may circulate poorly designed banners that clash with your site, according to Sterne.