Gadget Ads are created on top of the Google gadget framework used to create widgets for their iGoogle start page property. The ads themselves are actually entered into the Google gadgets directory automatically.
Google's new ads are sold via the familiar CPC or CPM model, however, because they are self contained, interactive marketing messages, I am not sure how measurement of CPC differs from regular ad creative (is this really per interaction?). Google offers free hosting for videos for the ads via YouTube (but allows advertisers to display videos with their own, branded player), and even though advertisers host their own content, Google's caching technology means that Google will really be footing the bill for bandwidth. Support for RSS means that gadget ads can be automatically updated with new content.
The above gadget has also been served as an ad via AdWords.
Gadget ads support any Google service tie-ins that the gadget framework does. So, for example, a gadget ad for a hotel chain could tie into Google Maps to give users directions to hotels in their area.
Google's Gadget Ads can really be looked at as a massive, paid widget distribution network. Widgets have long been used by companies for marketing purposes. Google is simply monetizing that use and providing advertisers with a method of guaranteed placement of their widgets on a very large number of web sites. Paramount Pictures, Pepsi-Cola, Honda, and Six Flags were among the first companies to test out the Gadget Ads service.
Via Markeing Pilgrim.