Back when Digg started letting its users vote on ads in August, there was concern that users would vote down each ad they saw, rendering advertising on the site obsolete. But just two months later, Digg is seeing returns on its new system.

And the company is so pleased with its new policy that it’s planning to expand its advertising platform into a network for other publishers. That sounds intriguing. Will it work?

The new ad model ties into the system already in place at Digg, letting users vote ads up or down according to their preference. The ads are then sold at a higher or lower rate according to their popularity with the group.

The company now hopes to famr out its ads to other publishers, helping them to capitalize on the aggressive (but unpredictable) traffic that Digg sends their way. When Digg users like a particular story or piece of content online, they send users to the site where it originated. In the case of a particularly hot story on Digg, that could mean thousands of new readers.

But there’s really no way to tell when Digg users will take to a story. And its hard for publishers to capitalize on the random traffic spikes coming from Digg. Digg is hoping to change that with its new offerings.

Its customizable banners let advertisers populate ads with feeds of user-submitted stories
around particular subjects, which could be in theme with the popular subject that brought users to the site. Next in line are the user voted ads that Digg has been testing out for the last few months.

Much like regular content on Digg, users can now vote on the advertising. More “diggs” (or votes) earn a lower
cost-per-click rate for the ad, and likely earn the ad a position on
the site longer. If users vote down an ad (known as “burying” it) the
cost-per-click rate will go up and the ad is more likely to be removed from the site.

Mike Maser, the company’s chief strategy officer, calls Digg “the world’s largest focus group,” and tells The New York Times that the new format has tripled revenue expectations for the initiative.

The average click-through rate on Digg is .8%, but ads voted up by viewers have had anywhere between 2.2 to 3% click-through rates. Meanwhile, the average click-through rate for ads across the web hovers around .1%, meaning many advertisers could be open to purchasing Digg approved ads.

The network is slated to rollout in 2010. If ads succeed on Digg, they can then be farmed out to other sites.

Chas Edwards, chief revenue officer
of Digg tells AdWeek that he sees this method as a way for publishers to make more money.

Will ads voted up by the Digg network be able to scale across platforms? Serving ads with information related to the surrounding content is a good step, but Digg isn’t the only company offering that. User sanctioned ads could be a useful marketing tool. Knowing that an active community of users have preapproved an ad could
work as a vote of confidence, justifying a higher price point for a
specific ad across the web.

The bigger reach is expecting that Digg’s base of users will be able to predict ad acceptance on other sites. The company has cultivated a very dedicated but niche demographic with behavior that can be predicted well on its site. But elsewhere, it’s a different story. There isn’t that much evidence that ads Digg users like wil be successful on other websites.

In the end, it’s all about context. Take this example from AdWeek:

“Movie studio Fox Atomic found a higher interaction rate for its ads
that drove traffic to a Jennifer’s Body video snippet posted on
Facebook than the same content on the official movie site.”