(Business 2.0) – If the banner ad isn't dead, it certainly has a hacking cough: According to a recent DoubleClick survey, the clickthrough rate for a simple GIF banner is a practically pointless 0.27 percent--and sinking. Attempts to improve those lowly numbers have sent Web marketers in two widely divergent directions.

On the low-resolution end are simple text ads from Overture and Google. These appear on the results page when searchers type keywords into the search engines; an advertiser pays only if the searcher then clicks on its ad. The low-cost ads have proven so efficient that small e-commerce businesses have sprung up around them. CSN Stores, for example, launched last September and already has two retail sites (one for audiovisual equipment stands, another for plasma TV mounts) using Google's Adwords and Overture as its main advertising vehicles. According to president and co-founder Niraj Shah, keyword-based ads make narrow-niche retailing a viable proposition. "All of our marketing is online," he says. "It's simple."

On the high-res end, there are a number of alternatives ranging from full-page animated ads to BMW's online movies. But Garry Kitchen, president and CEO of Skyworks Technologies, based in Hackensack, N.J., thinks the future is advergaming.

Something of an icon among gamer geeks, Kitchen has been coding computer games since 1980, when the platform of choice was the Atari 2600. He launched Skyworks Technologies in 1995 to put games on the Web, but not the shoot-'em-ups or medieval fantasies that prevailed at the time. "We wanted to do online games for the masses," he says. And the only way to do so profitably, he figured, was to write games sponsored by corporate advertisers.

The idea is simple. Ads woven into online games can leave deeper and more positive impressions than television commercials that force themselves on viewers for 30 seconds and then vanish. A game designed for Pepsi lets you race around a city trying to recover a hijacked shipment of Mountain Dew Code Red. The top 100 players received a free case of the soft drink before it launched nationwide--and Pepsi landed an e-mail address for everyone who submitted a score.

Part of Skyworks's success is its ability to customize similar games for different brands. "If I'm the official bubble gum of Major League Baseball and I want a racing game," Kitchen says, "we show them a catalog, they pick it, and we rebrand the game."

For advertisers increasingly hungry for clear ROI, Kitchen has begun designing games tied to actual purchases. If you want to play Pebbles Big Barney Chase on Post Cereal's game site, for example, you need to answer a question. And you can't know the answer without buying a box of Fruity Pebbles--or, more likely, getting Mom to.

Since most Web users still live in a dial-up world, Kitchen designs with primitive graphics and simple play. Even so, the games can be addictive. Candystand.com, a collection of trivia, racing, card, and arcade contests Skyworks designed in 1997 to promote Kraft's Life Savers candies, helps make Kraft's sites the sixth most popular gaming destination on the Web. Skyworks has more than 40 clients and last year made a $200,000 profit on some $4.3 million in revenues, according to Skyworks's accountant.

That's not exactly Fortune 500 territory--which is fine with Kitchen--but there is still plenty of opportunity. Jupiter Research estimates that the Internet's share of ad budgets will more than double to 6.1 percent by 2007. Aberdeen Group analyst Kent Allen expects much of the growth to come from consumer packaged-goods marketers. "The consumer guys are starting to understand advergaming," he says. "They're realizing it's a great way to connect with people." --M.A.